Caledonia Products Integrative Problem
Adam Pugh, Estee Vargas-Nichols, Jenny Clark
University of Phoenix
FIN 370
Cassandra Ryder
April 26, 2012

Caledonia Products Integrative Problem
When companies are determining whether an investment must be undertaken, they decide if the investment will add to or detract from the value of the firm. There are several determining factors in evaluating an investment. These include project free cash flow versus accounting profits, incremental cash flows, net present value, and internal rate of return. Caledonia Products is deciding whether to undertake a new investment project. The firm must determine the cash flows for the life of the project, calculate the net present value and the internal rate of return, and decide whether the project is a sound investment.
Caledonia must focus on free cash flow somewhat than accounting earnings because the free cash flow profits the society obtains, which can invested. Through examining the free cash flow, Caledonia would be competent to decide the definite advantage or the cost complicated. The association mainly should focus on the incremental cash flow since the incremental cash flow grips a peripheral advantage from the development. Decrease is measured to be expenditure item that means that the superior the devaluation, the superior the expenditure motivation be to the association. Consequently, if Caledonia perceived at the development from an office profit view, the profit would be much slighter than that of the free cash flow.
The financial assistant received the important assignment by memorandum from the Chief Executive Officer. The memorandum stated that the company is considering the introduction of a new product (Titman, Keown, & Martin, 2011). Caledonia is currently at a 34% marginal tax bracket with a 15% required rate of return or cost of capital (Titman et