Caledonia Products Integrative Problem

1039 Words May 17th, 2013 5 Pages
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 the net present value of the business proposal. In the project financial analyst from Caledonia Products will consider the net value versus the internal rate of return. The research will determine if the organization will become profitable over
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“Net present value (NPV) measures the value added to shareholder wealth from an investment Project” (Titman, Martin, Keown, 2011, p. 338). It is important for Caledonia Products to figure out the NPV. A start-up cost of $8, 100, 00 is a large amount, so Caledonia Products wants to ensure their investment will pay off. The first and second year covered the startup costs with an additional $7,061,600 profit. The return after year four starts to decline and probably would be negative after year five. NPV can help determine how long a company should continue a project, in Caledonia Products case, five years. Data | Description | | | 15% | Annual discount rate | | | -8,100,000 | Initial cost of investment | | 2,234,800 | Return from first year | | 12,926,800 | Return from second year | | 15,540,400 | Return from third year | | 7,699,600 | Return from fourth year | | 413,200 | Return from fifth year | | 18,443,592.2815176 | Net present value | | | | | | | | Data | Description | | | -8,100,000 | Initial cost of investment | | 2,234,800 | Return from first year | | 12,926,800 | Return from second year | | 15,540,400 | Return from third year | | 7,699,600 | Return from fourth year | | 413,200 | Return from fifth year | | 85% | Internal rate of return after five years | | |
The internal rate of

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