Caledonia Products Integrative Problem

Topics: Net present value, Cash flow, Rate of return Pages: 4 (1027 words) Published: May 4, 2013
Caledonia Products Integrative Problem
Charles Fletcher FIN/370 March 25, 2013 Daneene Barton

Caledonia Products is determining a new business proposal. The organization is planning a free cash flow investment and evaluating a project to determine the net present value of the business proposal. In the project financial analyst from Caledonia Products will consider the net value versus the internal rate of return. The research will determine if the organization will become profitable over the duration of five years. Research will also analyze if the investment will be a deficit to the company’s production over the duration of the project. A factor that Caledonia must take into consideration when determining if to lease versus buying is the security that comes along with owning an asset versus leasing one. With Caledonia owning the equipment, the company could feel more secure than with the leasing of an asset. The lessor can take the asset at any time, when ending the contract. Another factor that Caledonia must take into consideration is the maintenance that comes with owning vs. leasing. Some maintenance issues Caledonia faces with owning an asset is the requirement to take care of its maintenance issues, whereas with leased assets the owner is responsible. After analyzing the Caledonia Products Project the best choice that Caledonia Products Company should concentrate on is, free cash flows opposed to the accounting profits that the project earns because the free cash flow proposal the Caledonia Products Company accepts. The company may reinvest the free cash flow obtained. The company is capable of analyzing the cost or timing of benefits by studying its cash flows. The only cash flows that the...

References: Titman, S., Keown, A.J., & Martin, J.D. (2011). Financial management: principles and applications. (11th ed.) Upper Saddle River, N.J. Pearson/Prentice Hall
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