Research Paper

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Running head: FINAL PROJECT 1

FINAL PROJECT
LENAYE CHAMBERS
BUS.401: PRINCIPLES OF FINANCE
INSTRUCTOR; GRANT MAGNUSON
APRIL 28,2013

FINAL PROJECT 2

FINAL PROJECT

To: Mr. V. Morrison,CEO,Caledonia Products From: The Assistant Financial Analyst Re: Cash Flow Analysis and Capital Rationing

Considering the introduction of a new product,
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c. How do sunk costs affect the determination of cash flows? Cash flows that have already took place can be called, sunk cost because cash flows have to be sunk into a project and this cannot be undone. ( Keown, Martin, & Petty, p.305 )

d. What is the project’s initial outlay? Cost of new plant and equipment, shipping and installation costs plus working - capital $ 7,900,000 + $ 100,000 + $ 100,000 = $ 8,100,000

FINAL PROJECT 4

j. Should the project be accepted? Why or why not? This project should be accepted because Caledonia’s net present value is positive and projects that have a negative NVP destroys the value. For example, if the NPV is greater than zero
( NPV>0 ) , then this project should be accepted. ( lard bucket, 2012, sec.13 )

k. In capital budgeting, risk can be measured from three perspectives. What are those three measures of a project’s risk? Capital budgeting risk can be measured from three perspectives. First, the project standing alone risk, is a project’s risk ignoring the fact that much of this risk will be diversified away. Secondly, would be the project’s contribution - to - firm risk, which is the amount of risk that the project contributes to the firm as a whole, thus, considering the fact

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