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

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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?

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Linda_us and 3 other Homework Specialists are ready to help you
Customer: replied 3 years ago.

Thank you very much.

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 3 years ago.

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

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.

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

Let me know,

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

Let me know,

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