The Caledonia Mini Case
From the Mini Case on page 329-330, parts “a” to “d,” summarize your analysis in a concise management statement not to exceed a total of 1,200 words. For parts “e” to “k,” use formulas to calculate the ratios and format the cells to insert a comma if there is more than three numbers. Round to the nearest whole number. Clearly label your analysis and your conclusions in not more than 500 words.
- Should Caledonia focus on cash flows or accounting profits in making its capital-budgeting decisions? Should the company be interested in incremental cash flows, incremental profits, total free cash flows, or total profits?
- How does depreciation affect free cash flows?
- How do sunk costs affect the determination of cash flows?
- What is the project’s initial outlay?
- What are the differential cash flows over the project’s life?
- What is the terminal cash flow?
- Draw a cash flow diagram for this project.
- What is its net present value?
- What is its internal rate of return?
- Should the project be accepted? Why or why not
- In capital budgeting, risk can be measured from three perspectives. What are those three measures of a project.