Describe factors Caledonia must consider if they were doing a lease versus buy Sense Caledonia is thinking of introducing a new product‚ the company must decide whether to lease or buy. Caledonia is in the 34 percent marginal tax bracket with a 15 percent required rate of return on cost of capital‚ the new project being a fad will only be a for five years. When deciding to lease‚ Caledonia must consider how reducing out of pocket cost could benefit the company. Though leasing would mean they do
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Given Initial capital expenditure $7‚900‚000.00 Shipping and installation costs $100‚000.00 Life of the initial expenditure 5.00 Salvage value $0.00 Marginal tax rate 34.00% Discount rate 15.00% Net working capital 10.00% Net working capital investment $100‚000.00 Fixed costs per year $200‚000.00 Sales price(1-4) $300.00 Sales price (5) $260.00 Variable cost of product $180.00 Year 0 Year 1 Year 2 Year
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a. Should Caledonia focus on cash flows or accounting profits in making its capital-budgeting decisions? Should the company be interested in incremental cash flows‚ incremental profits‚ total free cash flows‚ or total profits? Caledonia should focus on cash flows‚ not accounting profits. Free cash flows are able to be reinvested‚ whereas accounting profits are shown when they are earned‚ not when the cash is actually received. The company should be interested in incremental after-tax cash flows
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Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows: YEAR PROJECT A PROJECT B 0 -$100‚000 -$100‚000 1 32‚000 0 2 32‚000 0 3 32‚000 0 4 32‚000 0 5 32‚000 $200‚000 The required rate of return on these projects is 11 percent. Project A: Net present value is found by taking the original investment cost‚ $100‚000 (that would be a negative amount since it’s cash out the door)‚ and then
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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
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two things. a . O ne‚ do you think thin - slab casting will be a profitable i nvestment? There is a spreadsheet available for download along w ith this project that will help you m ake a n a ss essm ent. This s preadsheet calculates the internal rate of return (IRR) of the new p roject using cash flow projections. The projections are based on a ssum ptions detailed in the notes below the m ain spr eadsheet. O nce you download t he spreadsheet‚ you can exp erim ent with d ifferent
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There are a lot of factors that Caledonia must consider when they are thinking about buying versus leasing a property. Leasing brings many positive savings in a company; there are many incidentals that may come up while owning a property‚ such as the unexpected repairs. Leasing can help with long term savings for a company; it provides the comfort of trying new areas out. If Caledonia starts to branch out‚ opens up new locations in different states‚ leasing the building will be a lot smarter of an
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000‚000 | -$2‚000‚000 | 1 | 500‚000 | | 2 | 500‚000 | | 3 | 500‚000 | | 4 | 500‚000 | | 5 | 500‚000 | | 6 | 500‚000 | | 7 | 500‚000 | 5‚650‚000 | a. Compute the NPV and IRR for the above two projects‚ assuming a 13% required rate of return. b. Discuss the ranking conflict. c. What decision should be made regarding these two projects? Answer: a. NPV of A = $211‚305 NPV of B = $401‚592.64 IRR of A = 16.33% IRR of B = 15.99% b. The later cash flow of
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value. B. internal rate of return. C. accounting return. D. profitability index. E. payback period. The internal rate of return is defined as the: A. maximum rate of return a firm expects to earn on a project. B. rate of return a project will generate if the project in financed solely with internal funds. C. discount rate that equates the net cash inflows of a project to zero. D. discount rate which causes the net present value of a project to equal zero. E. discount rate that causes
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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
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