Caledonia Products Integrative Problem Fin 370
Caledonia Products Integrative Problem
FIN/370
April 7, 2014
Christine Gordon
Caledonia Products Integrative Problem
Caledonia Products recently acquired a new financial analyst assistant. Before “unleashing” the new assistant into a solo position Caledonia Products has set a huge task. The new assistant has to take under consideration a new investment, of creating and distributing a new product. The new project would last five years and cost a total of $1,000,000 over the course of the five years. The assistant will be both calculating the cash flows associated with the new investment as well as evaluate several mutually exclusive projects, (Titman, Keown, & Martin, 2011). The assistant must answer several key questions:
1. Why should Caledonia focus on project …show more content…
Taxes (34%)
$2,250,800
$4,290,800
$5,106,800
$2,658,800
$1,026,800
Net Operating Revenue
$4,369,200
$8,329,200
$9,913,200
$5,161,200
$1,993,200
Net Working Capital
$2,200,000
$5,800,000
$10,000,000
$12,400,000
$12,400,000
Cash Flow
$3,849,200
$6,309,200
$7,293,200
$4,341,200
$15,973,200
Variable Costs
Tax Bracket
Working Capital
$180
34%
$100,000
Annual Fixed Costs
Discount Rate
Net Yearly Investment
$200,000
15%
10%
Plant/Equip Costs
Depreciation
$7,900,000
Straight line over 5 years
Shipping/Installation Costs
$100,000
Year
Units Sold
Sales Price Per unit
1
70,000
$300
2
120,000
$300
3
140,000
$300
4
80,000
$300
5
60,000
$260
What is the project’s initial outlay (Geri)
Cost of new plant and equipment: $ 7,900,000
+ Shipping and installation costs: $ 100,000
+ Initial working capital requirement of $100,000
Total= $8,100,000
Sketch out a cash flow diagram for this project (Crissanta)
What is the project’s net present
FIN/370
April 7, 2014
Christine Gordon
Caledonia Products Integrative Problem
Caledonia Products recently acquired a new financial analyst assistant. Before “unleashing” the new assistant into a solo position Caledonia Products has set a huge task. The new assistant has to take under consideration a new investment, of creating and distributing a new product. The new project would last five years and cost a total of $1,000,000 over the course of the five years. The assistant will be both calculating the cash flows associated with the new investment as well as evaluate several mutually exclusive projects, (Titman, Keown, & Martin, 2011). The assistant must answer several key questions:
1. Why should Caledonia focus on project …show more content…
Taxes (34%)
$2,250,800
$4,290,800
$5,106,800
$2,658,800
$1,026,800
Net Operating Revenue
$4,369,200
$8,329,200
$9,913,200
$5,161,200
$1,993,200
Net Working Capital
$2,200,000
$5,800,000
$10,000,000
$12,400,000
$12,400,000
Cash Flow
$3,849,200
$6,309,200
$7,293,200
$4,341,200
$15,973,200
Variable Costs
Tax Bracket
Working Capital
$180
34%
$100,000
Annual Fixed Costs
Discount Rate
Net Yearly Investment
$200,000
15%
10%
Plant/Equip Costs
Depreciation
$7,900,000
Straight line over 5 years
Shipping/Installation Costs
$100,000
Year
Units Sold
Sales Price Per unit
1
70,000
$300
2
120,000
$300
3
140,000
$300
4
80,000
$300
5
60,000
$260
What is the project’s initial outlay (Geri)
Cost of new plant and equipment: $ 7,900,000
+ Shipping and installation costs: $ 100,000
+ Initial working capital requirement of $100,000
Total= $8,100,000
Sketch out a cash flow diagram for this project (Crissanta)
What is the project’s net present