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Caledonia Products Integrative Problem

In: Business and Management

Submitted By mizzva
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Caledonia Products Integrative Problem
FIN/370
February 11, 2014

Caledonia Products Integrative Problem It has been two months since team B has been hired as an assistant financial analyst at Caledonia Products; the company has been pleased with our work. They are still a little hesitant to give us work without supervision. Caledonia Products Company is introducing a new product, we have been given the assignment that involves both the calculation of the cash flows associated with a new investment and the evaluation of several mutually exclusive projects. The company is currently in the 34% tax bracket with a 15% discount rate because this project is considered a fad project it will only last five years then it will be terminated. This paper will focus on free cash flows, projection of cash flows during years 1-5, projects initial outlay, cash flow diagram, net present value, internal rate of return, and if the project should be accepted.
Free Cash Flow Versus Profits Earned After reviewing the numbers for project Caledonia Products, it shows that the best route that Caledonia Products Company should focus on is free cash flows versus to the accounting profits that was obtained by the project itself. The numbers show that the accounting profits should be earned by this current project due to there is a positive rather than negative cash flow to the company shareholders. In this case, Caledonia’s free cash flow is its total cash available to the creditors who invested their cash to run the project. Accounting profits are costs which are the interest, taxes and the depreciation that run a business and in which it should not interfere the free cash flows. The free cash flow that this project shows, starting from zero to the five year mark will benefit the Caledonia Products company if they should choose to follow-through with this plan. The company…...

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