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Caledonia Products

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Caledonia Products Integrative Problem

Learning Team “C”

Justin Griffin, Charles Ammah, Constance Allen, Edward Mason, and Mark Dawson

FIN/370
April 25, 2013
Professor Bruce Huang

Caledonia Products Integrative Problem

Learning team C is tasked to prepare a response to the Caledonia Mini-Case located in chapter 12 of his and her readings. The team is to formulate answers to questions one through seven and describe factors Caledonia must consider if it were to lease versus buying. Here is the team’s response to the mini case. 1. Why should Caledonia focus on project free cash flows as opposed to the accounting profits earned by the project when analyzing whether to undertake the project? Caledonia should focus on the project free cash flows instead the accounting profits received from the project because of the free or tax free money the company will receive by analyzing whether to handle the project. The incremental cash flow is the cash flow that Caledonia has interest in which projects marginal benefits that increase value within the company.

2. What are the incremental cash flows for the project in years 1 through 5 and how do these cash flows differ from accounting profits or earnings?

The incremental cash flows for the project in years one through five changes in net working capital is:

The Net Operating Cash Flow - revenue net of expenses and liabilities for the specific period

▪ Net Initial Investment Outlay - investment cash credits and the sale of existing or old and non-useful equipment cash expenditures and net cash flows.

▪ Net Salvage Value - after tax net cash flow for liquidations, terminations, and unmanageable projects businesses owners no longer need.

|Year |0 |1 |2 |3 |4

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