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Manal Elkhoshkhany
Manal Elkhoshkhany, Bachelor's Degree
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Experience:  Finished my BA degree with a GPA of 4.0.
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Prepare a response to the Caledonia Products Mini-Case located

Customer Question

Prepare a response to the Caledonia Products Mini-Case located near the end of Ch. 12 in Financial Management.
• Formulate answers to questions 1–7
• Describe factors Caledonia must consider if it were to lease vs. buying.
Submitted: 2 years ago.
Category: Single Problem
Expert:  Manal Elkhoshkhany replied 2 years ago.

Hello

 

Please advise your deadline as well as the name of the book you are using: Title, author's name, and edition

 

Thank you

Customer: replied 2 years ago.

deadline is 2 pm est. here is all the information you need . just answer questions 6 and 7 .


 



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:



















































































Year



Units Sold



1



70,000



2



120,000



3



140,000



4



80,000



5



60,000



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.







Answer the following questions


















6.



What is its internal rate of return?



















7.



Should the project be accepted? Why or why not



Expert:  Manal Elkhoshkhany replied 2 years ago.

Thank you :) but you cannot calculate the IRR without going through the whole problem anyway as you need to calculate the operating cash flows :) Please click on the following link to download the solution:

 

https://www.box.com/s/373181a586db15e87147

 

 

P.S. If you like my services, please feel free to direct your future posts to me specifically by typing "For BusinessTutor" at the beginning of your post. Should you choose to do this, please try to allow me 48 hours before the deadline. If you need to meet me online for a timed assignment, please advise me of the date and time (EST) you want me to meet you here and I will. Please make sure you take the length (and number) of the questions into consideration when making your offer to avoid delays in providing solutions.

 

Thank you

Manal Elkhoshkhany, Bachelor's Degree
Category: Single Problem
Satisfied Customers: 9476
Experience: Finished my BA degree with a GPA of 4.0.
Manal Elkhoshkhany and 3 other Single Problem Specialists are ready to help you
Expert:  Manal Elkhoshkhany replied 2 years ago.

Sorry for the multiple messages, but please download the solution and review it, if you need further explanation please ask, if not then please rate the solution.

 

Thank you




Expert:  Manal Elkhoshkhany replied 2 years ago.

Thank you for rating my solution but I have noticed that you rated it with "Good Service", is there anything more you needed so that you rate it with "Excellent Service"?

 

I do not want you to leave the site unless you are 100% satisfied with the solution

 

Regards,

Customer: replied 2 years ago.


THANKS

Expert:  Manal Elkhoshkhany replied 2 years ago.
You are welcome

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