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Shawn P Adamo
Shawn P Adamo, Retired CPA
Category: Finance
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Experience:  Retired CPA
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I need only to answer the following two questions on the below

Resolved Question:

I need only to answer the following two questions on the below data:

• #3 question - What is the project’s initial outlay?
• #4 question - Sketch out a cash flow diagram for this project.

Given your lack of tenure at Caledonia, you have been asked not only to provide a recommendation, but also to respond to a number of questions aimed
at judging your understanding of the capital-budgeting
process. The memorandum you received outlining your assignment
follows:
To: XXXXX XXXXX Financial Analyst
From: Mr. V. Morrison, CEO, Caledonia Products
Re: Cash Flow Analysis and Capital Rationing
We are considering the introduction of a new product.
Currently we are in the 34% tax bracket with a 15% discount
rate. This project is expected to last five years and then,
because this is somewhat of a fad project, it will be
terminated. The following information describes the new
project:
Cost of new plant and equipment: $ 7,900,000
Shipping and installation costs: $ 100,000
Unit sales:
Sales price per unit: $300/unit in years 1–4 and
$260/unit in year 5.
Variable cost per unit: $180/unit
Annual fixed costs: $200,000 per year
Working capital requirements: There will be an initial
working capital requirement of $100,000 just to get
production started. For each year, the total investment in net
working capital will be equal to 10% of the dollar value of
sales for that year. Thus, the investment in working capital will
increase during years 1 through 3, then decrease in year 4.
Finally, all working capital is liquidated at the termination of the
project at the end of year 5.
Depreciation method: Straight-line over 5 years
assuming the plant and equipment have no salvage value
after 5 years.
Submitted: 2 years ago.
Category: Finance
Expert:  Shawn P Adamo replied 2 years ago.

Shawn P Adamo :

Hello. My specialty is focusing on YOUR Financial needs. Financial Planner/Business Owner for 20 years. CPA,PFS,QFP,GMMA.


 

Shawn P Adamo :

answer


 


 

Shawn P Adamo :

Click on the blue word "answer" I have answered this question previously. please let me know if this answers the question.


 

Shawn P Adamo :

• 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?
• b. How does depreciation affect free cash flows?
• c. How do sunk costs affect the determination of cash flows?
• d. What is the project’s initial outlay?
• e. What are the differential cash flows over the project’s life?
• f. What is the terminal cash flow?
• g. Draw a cash flow diagram for this project.
• h. What is its net present value?
• i. What is its internal rate of return?
• j. Should the project be accepted? Why or why not?
• k. In capital budgeting, risk can be measured from three perspectives. What are those three measures of a project’s risk?
• l. According to the CAPM, which measurement of a project’s risk is relevant? What complications does reality introduce into the CAPM view of risk, and what does that mean for our view of the relevant measure of a project’s risk?
• m. Explain how simulation works. What is the value in using a simulation approach?
• n. What is sensitivity analysis and what is its purpose?


 

Customer:

I had offered $30.00 for two (2) answers, I cannot afford $59.00 is $30.00 acceptable?

Shawn P Adamo :

k.


pls hang on two minutes

Shawn P Adamo :

A


 

Shawn P Adamo :

brb

Shawn P Adamo :

answer


 

Shawn P Adamo :

OK. I remember being in school and money being tight. Click on the answer (in blue above) and receive your answer


 

Shawn P Adamo :

I'm hoping for a great rating as cash is tight. LOL


 

Customer:

Thank you so much.

Shawn P Adamo, Retired CPA
Category: Finance
Satisfied Customers: 1280
Experience: Retired CPA
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Shawn P Adamo
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Retired CPA