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Linda_us
Linda_us, Finance, Accounts & Homework Tutor
Category: Homework
Satisfied Customers: 7038
Experience:  Post Graduate Diploma in Management (MBA)
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Its been two months since you took a position as an assistant

Resolved Question:

It’s been two months since you took a position as an assistant financial analyst at Caledonia Products. Although your boss has been pleased with your work, he is still a bit hesitant about unleashing you without supervision. Your next assignment involves both the calculation of the cash flows associated with a new investment under consideration and the evaluation of several mutually exclusive projects. 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.

I need answers for the following two questions with work shown please.

5. What is the project’s net present value?
6. What is its internal rate of return?
Submitted: 1 year ago.
Category: Homework
Expert:  Linda_us replied 1 year ago.
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Linda_us, Finance, Accounts & Homework Tutor
Category: Homework
Satisfied Customers: 7038
Experience: Post Graduate Diploma in Management (MBA)
Linda_us and 11 other Homework Specialists are ready to help you
Customer: replied 1 year ago.

Thank you very much.

Expert:  Linda_us replied 1 year ago.

You are welcome. I would appreciate if you could provide the feedback by clicking smiley as that is the only way I get paid for helping you.

Customer: replied 1 year ago.


Sorry, I didnt know that. Yes I will click the smiley. One more question are you sure these are correct?

Expert:  Linda_us replied 1 year ago.
I am 100% sure. If you need I can provide you all 7 part including the part where actual cash flow needs to be calculated.
Expert:  Linda_us replied 1 year ago.
Hi


I'm just following up with you to see how everything is going. Did my answer help?


Let me know,
Linda
Expert:  Linda_us replied 1 year ago.
Hi

I'm just following up with you to see how everything is going. Did my answer help?

Let me know,
Linda

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