Larry Crenshaw, Laura Gonzalez, Andrea, Taylor, Debra Ramirez Lira
Finance for Business louvre/370
December 5, 2012
Donald Autrey
Caledonia Analysis
1.Why should Caledonia heighten on project discharge bills flow as argue to the accounting profits take in by the project when analyzing whether to undertake the project?
Caledonia Products Company should focus on free cash flow as opposed to the accounting profits earned by the project because the free cash offer is what the Company receives. Â The cash flow sure can be reinvested. Â The Company is able to analyze the time of the benefits or cost by examining their cash flows. Â Also the fast(a) is only interested in the free cash flows on an after-tax basis because they argon the only ones available to the shareholder (Titman, 2011).
2. What are the incremental cash flows for the project in years 1 through 5 and how do these cash flows differ from accounting profits or earnings?
Question two respond is located in the attached excel spreadsheet.
3. What is the projects initial expending?
The projects initial outlay is $8,100,000. The answer to this dubiousness comes after certain steps to find the initial outlay:
Step 1: Determine the Operating Cash Flow.
course of study| 0| 1| 2| 3| 4| 5|
| | | | | | |
Units Sold X| | 70,000| 120,000| 140,000| 80,000| 60,000|
Sale Price =| | $ three hundred| $300| $300| $300| $260|
Revenue| | $21,000,000| $36,000,000| $42,000,000| $24,000,000| $15,600,000|
| | | | | | |
Less Variable be| | $12,600,000| $21,600,000| $25,200,000| $14,400,000| $10,800,000|
Less Fixed represents=| | $200,000| $200,000| $200,000| $200,000| $200,000|
| | $8,200,000| $14,200,000| $16,600,000| $9,400,000| $4,600,000|
Less Depreciation Cost: 7,900,000 + $100,000/5= 8,000,000| | $1,600,000| $1,600,000| $1,600,000| $1,600,000| $1,600,000|
| | | | | | |
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