# Caledonia Products Integrative Problem

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Caledonia Products Integrative Problem Christina Smith, Patricia Bryant, Kelley Randall, Ashley Irizarry FIN 370 Jan. 27th, 2014 Tarak Patel

2 Caledonia Products Integrative Problem 1. Caledonia should focus on project free cash flows because it is able to measure the company’s cash flows minus its capital expenditures. This can help a company determine the cash it is able to generate and see what cash is available to use for projects and expansion, pay dividends, or more. Looking at the company’s accounting profits will show the company’s earnings, but the cash flows will show the company’s overall financial health. The biggest reason to look at free cash flows opposed to projects accounting profits is that
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������������������ = ������������° +

������������������ = −8,100,000 +

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= \$16,746,506

5. The project’s net present value is: NVP = - (8,000,000) + 3,956,000/1.15 + 8,416,000/1.32 + 10,900,000/1.52 + 8,548,000/1.75 + 5,980,000/2.01 = \$16,831,095.66 6: What is its internal rate of return? Life of Asset Cost of Asset 5 years (8,000,000)

Annual Cash Flow Year 0 1 2 3 4 5 Cash Flow (8,000,000.00) \$ \$ 3956000.00 8416000.00

\$ 10900000.00 \$ \$ 8548000.00 5980000.00

Internal Rate of Return

77.98%

7 7. The Caledonia Project should be accepted because the net present value is more than zero and the internal rate of return is still more than the discount rate and the rate of return. The initial investment of the project is 8,100,000 and after calculations