...VALE Briefly explain its profile (e.g. activity, business model, history, who are the owners). Vale is a Brazilian multinational specialised in mining and metal operations. It is the third largest mining company in the world, with over 85,000 employees and a revenue of $44 billion in 2013. The ownership is currently split into 3 golden-shares owned by the Brazilian Government and the rest is owned by pension funds. Founded in 1942 by the Brazilian Federal Government as Companhia Vale do Rio Doce (CVRD), it soon became the biggest company responsible for the country’s iron ore exports (80% in 1949). In 1982, Vale diversified its activity portfolio, but also expanding geographically. The firm was privatised in 1997, and as a result, decided to focus mainly on mining extraction as a primary business, only keeping logistics and energy as a way to reduce costs and risks of their main activity. From 2000 to 2007, Vale entered a phase of market consolidation, resulting in the company owning 85% of the iron ore production in Brazil. At the same time, the company diversified internationally to increase the participation of non-ferrous metals on total revenues – for example, a nickel-producing company in Canada, or coal-mining companies in Australia or China. Explain the company’s strategy, drawing from the data you found plus your assumptions. Vale’s vision is to be the number one global natural resources firm. In order to achieve its vision, Vale has a strategy of expansion: ...
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...Caledonia Products Integrative Problem Michelle M. Rayford, Peter Pontone, and Sibylle Letzelter FIN/370 June 18, 2012 Laura Haase Caledonia Products Integrative Problem Question 1 Caledonia should focus on project free cash flows as opposed to accounting profits earned because free cash lows show the value of the projects. Caledonia needs to isolate the project independent from regular company financials to understand how the project will contribute value to the business. Accounting profits earned will take into account the entire business and it will not isolate the project. A good example is dry cleaners that decide to open up a second location. The owner needs to look at the cash flow from the second store on its own to see if it will add enough value on its own. If you look at just the accounting profits, it might indicate that the company will be “more” profitable. However, that does not show how much the new project contributes on its own. Question 2 Incremental Cash Flows Years 1-5 | YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 | YEAR 5 | Project Revenues (sales price/unit * # units) | 21,000,000 | 36,000,000 | 42,000,000 | 24,000,000 | 15,600,000 | Cost of Goods Sold ($180/unit) | 12,600,000 | 21,600,000 | 25,200,000 | 14,400,000 | 10,800,000 | Gross Profit | $8,400,000 | $14,400,000 | $16,800,000 | $9,600,000 | $4,800,000 | Cash operating expenses | 200,000 | 200,000 | 200,000 | 200,000 | 200,000 | Depreciation ($7.9M/5) | 1,580,000 | 1,580,000 | 1,580,000 | 1...
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...Caledonia: Free Cash Flow Project By: Sonya Walls, Juanita Jackson, and Maoc Davies 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 has to consider their free cash flow simply because it is the amount of money the company has on hand and it will eventually cause it to grow. Accounting profits earned by the project are based off where they see themselves and what the expect to get in return. They are expecting to succeed regardless. 2. What are the incremental cash flows for the project in years 1 through 5 an how do these cash flows differ from accounting profits or earnings? The incremental cash flows for the project in years 1 through 5 are shown in the following chart. Of course there was no listed information on the cost of normal operations in the scenario. 3. what is the project’s initial outlay? The projects initial outlay would be about 100K. The 100K for working capital plus the cost of the plant equipment of 7.9 million and the shipping 4. Sketch out a cash flow diagram for this project. 5.What is the project’s net present value? According to the cash flow diagram above, the project’s net present value is $ 17,876,571 6. What is it’s internal rate of return? 93% 7. Should the project be accepted? WHY or WHY not? Yes, the project should be accepted because the IRR is above zero. 8. Describe the factors...
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...Caledonia Products March 24, 2013 BUS 401 Principles of Finance Caledonia Products Caledonia products is a company in which wants to foresee if the company should be invested into and if it has potential to invest. As we focus on free cash flows other then accounting profits because there are flows in which the firm receives and can reinvest. By only examining cash flows which is, “the amount of cash available from operation after the firm pays for the investment it has made in operating working capital and fixed assets. This cash is available to distribute to the firm’s creditors and owners.”( Keown, A., Martin, J., & Petty, J. (2011). Foundations of finance (7th ed.). We are only interested in these cash flows on after tax basis only as these are the flows which are available to the shareholder. Second, it is only the incremental cash flows which interest the company by looking at the project from the point of the company as a whole; the incremental cash flows are the marginal benefits from the project and are the increased value to the firm of accepting the project. Depreciation is not a cash flow term; it does affect the level of the differential cash flows over the project’s life because of its effect on taxes. Depreciation which is an express item and the more depreciation incurred, the larger are expenses. The accounting profits become lower and in turn, so do taxes which are cash flow item. When evaluating the capital budgeting proposal, the sunk costs are...
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...Caledonia Products Integrative Problems Team A March 22, 2012 FIN/370 Kimberly Corbin University of Phoenix Loop Campus Caledonia Products Integrative Problems 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? a. Caledonia should focus on project free cash flow rather than accounting profits because free cash flow is what the company will receive that can be reinvested into the company. Thoroughly analyzing the free cash flow will help Caledonia determine the actual benefit and/or cost involved in the project. The company should focus primarily on the incremental cash flow because this holds a marginal benefit from the project. Depreciation is an expense meaning the greater the depreciation the greater the expense; therefore, if Caledonia looked at the project from the accounting profits, the profit will be much lower than that of the free cash flow. 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? b. The incremental cash flows for the projects in years 1 through 5 show $4,460,000 increase from the first to the second year, which is roughly about 53%. Year two through year three showed a %23 increase however year three through five respectively decrease %28 and %43 which as was expected to occur. 3. What is the project’s initial...
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...Ethics and Compliance Sarah jane FIN 370 July 17, 2010 Michael Joe Ethics and Compliance Paper Ethics and compliance play a significant role in an organizations financial environment. The ethical and compliance standards set in a company lay the foundation of how a company will do business with internal and external customers. Walt Disney Company is a well-known name around the world. A big company like Walt Disney set procedures that will ensure ethical behavior, and follow rules and, regulations that are set for them. PriceWaterHouseCoopers LLP is a public accounting firm that confirmed that Walt Disney Company’s financial statements were fairly done and proved that Walt Disney’s internal control was effective on financial reports (The Walt Disney Company, 2012). According to "U.S. Department of The Treasury" (n.d.), “The U.S. financial markets consist of many separate markets for diverse products offered on a range of trading platforms and exchanges.uyuyuhyuhuhuukhkuh” Taking out a loan for a car or home automatically makes a person part of a financial market. There are three principal groups of players that interact; they are borrowers, savers (investors), and financial institutions. Borrowers are those who need money to finance their purchases, such as businesses that need money tjhujhijikhnjhjhumjhjh o make investments, or individuals who need money to purchase a car. Savers (investors), are those who have money to devote, these individuals save money...
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...Caledonia Project Team A James Kochiel, Erik Nutt, Lynnell Smothers, Derek Wright January 21, 2014 John Dewey 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 cash flows, because free cash flows can be reinvested when received, unlike accounting profits which are shown when earned, and not at the time cash is received. The company should focus on incremental after-tax cash flows. This enables it to analyze the profits or losses after comparing cash flows with or without the project on an after tax basis. 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 for the five year period are net initial investment, net salvage value and net operating cash flow. Operating cash flow consists of the net revenue of expenses and liabilities for a particular time, salvage value is the after-tax cash flow received from the liquidation or ending projects no longer wanted by the company and initial investment outlay consists of cash flows from the sale of new and old equipment. The difference from profits and earnings is that they are not categorized as expenses but long spread depreciation ...
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...Caledonia Products K.C. BUS 401 Principles of Finance Prof. Andrew McIntyre March 19, 2012 Caledonia Products Businesses are started in many ways for many reasons. Many companies begin as very small businesses while others are inherited as major corporations. Most businesses have shareholders who invest in different business ventures in order to receive a profit. Whether the profit is in the form of dividends or something else, all shareholders will try to ensure to success of the company. No matter what type of investments the company receives, there are many decisions and risks that a company must consider. Caledonia should focus on free cash flows because the firm actually receives these cash flows and can also reinvest them. These cash flows are beneficial on an after tax basis. The company should be interested in incremental cash flows as a whole. The acceptance of the project results in increased value of the firm while the cash flows are the marginal benefit. Depreciation is an expense which affects cash flow indirectly. Cash flows are affected by depreciation throughout the life of a project through income taxes. The more depreciation is incurred, the larger the expense. Higher depreciation expenses can cause a lower taxable income which creates changes in cash outflow. Sunk costs are normally irrelevant especially when sunk costs are already occurred. Being that the company should...
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...Sense Caledonia is thinking of launching new merchandise, the company must decide whether to lease or buy. Caledonia is in the 34 percent marginal tax bracket with a 15 percent call for a rate of return on cost of capital, the new project being a fad will only be a for five years. When deciding to lease, Caledonia must consider how reducing out of pocket cost could benefit the company. Though leasing would mean they do not fully own the product. When leasing, Caledonia must consider the rates that will be used in the cost of leasing. The company’s credit rating will determine if they will receive a good rate on their lease. Another factor is will the company have enough income to pay the lease as necessary. In order to be protected shareholders ponder on having current paycheck stubs furnish to verify that the cost. In most instances the merchandise expenses are paid in full and then the lease is up. The leasing company owns the merchandise until expenses are paid in full. The budget is an important component to take into account to decide how much product the company would be able to acquire. The company should be certain the products have face values and is able to provide adequate income. A back up plan should always be considered by a business, in case a payment is missed. The company has the option to own it, when buying a product. The best value offered in most cases is when you are buying a brand new product, and have the best value offered, and the best prices is...
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...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? They need the free cash flow in order to stay in business. Caledonia needs to focus on the free cash flow amount as they can reinvest this money once they receive it back. The free cash flow gives Caledonia a sense of what the amount may be and lets them see the value at a real dollar amount. They need the free cash flow in order to stay in business. 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? Caledonia does not show any type of depreciation within the company’s free cash flow. Looking at the different years over the lifetime of the project will have an effect on the project as well as the taxes. From the first to the third year there was a large increase from year to year. When the fourth and fifth year came around the company had a major decrease within both years. 3. What is the project’s initial outlay? The company’s initial project outlay was $7,900,000 would be the cost of a new plant and equipment, with $100,000 being used for shipping and installation cost. With $100,000 being used for working capital to get the production started. 4. What is the projects net present value? The project net present value is $16,731,095.66 5. What is the projects internal rate of return...
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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...
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...University Of Phoenix Productos Caledonia Problema / Integrada FIN/370 Finance for Business Wilson Rodríguez /Oscar Cruz / Nelson Ostolaza Profesor: Ricardo Cardona 19 de Julio 2012 Productos de Caledonia Problema Integrada En este ensayo presentaremos información sobre los productos de Caledonia en donde analizaremos la conducta de flujos de caja del proyecto libre, en comparación con los beneficios contables obtenidos por los mínimos de caja libre. En adición mostraremos el valor de los proyectos para aislar el proyecto. Pregunta # 1 Caledonia necesita tener independiente de las finanzas regulares de la empresa para poder entender cómo el proyecto contribuirá en relación al valor al negocio. Los beneficios obtenidos de contabilidad tendrán en cuenta la totalidad del negocio y no deberá aislar el proyecto. Daremos un ejemplo: En un loundry los dueños han decidido abrir un segundo local. El dueño deberá buscar en el flujo de efectivo de la segundo loundry por sí mismo, para ver si se puede agregar valor suficiente...
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...Caledonia: Financial Analysis Catrina Sweers BUS401: Principles of Finance Ramzi Salloum April 30, 2012 Caledonia: Financial Analysis Taking on a new project or having an expansion done on an already existing facility takes time. There are several factors that need to come into play, centering mainly on capital-budgeting. As an analysts this is their main job; they need to be able to formulate the cash-flows statement for the project while figuring in such factors as risk, and depreciation, differential cash flows to determine if taking on the project is worth the monetary value as well as the risk. An analyst must also be able to measure the risk that is associated with the project and determine what effects it will have on the corporation. Also, an analyst must be able to not only consider the risk associated with systematic but also with contribution-to-firm when it comes to real life situations. Simulation provides an analyst with the opportunity to run a project through a variety of changes to key factors resulting in or as close to real life results. The project then can be put through a sensitivity analysis to see how sensitive the project will be to any changes that may take place. Capital Budgeting Capital budgeting can be a large fit to tackle. There are two separate options that a financial analyst can consider to focus on; cash flows and accounting profits. Both options have their pros and cons. For instance when it comes to accounting profits, this process...
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...Caledonia Products Integrative Problem Part A. What is each project’s payback period? Payback period = Investment required / Net Annual Cash Inflow Project A: 100,000 / 32,000 = 3.125 years Project B: 5 years. There is no cash inflow until the fifth year when an inflow of $200,000 comes in to offset the investment. To determine payback period it is the following: Payback Period = Y + ( A / B ) where Y = The number of years before final payback year. A = Total remaining to be paid back at the start of the payback year, to bring cumulative cash flow to B = Total (net) paid back in the entire payback year For first case Y=3 (we see in year 4 it is paid back so 3 is year before final payback year) A=100000-(32000*3)= 4000 B= 32000 3+ (4000/32000) 3.125 2nd case Y= 4 because we see the investment is paid in full in year 5 so year before is 4 A= 100000 B=200000 4+(100000/200000) 4.5 Your solutions were slightly off. Part B. What is each project’s net present value? Project A NPV is $18,268 Project B NPV is $18,690 Year Project A Project B At 11% Present value A Present value B 0 -100000 -100000 1 -100000 -100000 1 32000 0 0.900900901 28828.82883 0 2 32000 0 0.811622433 25971.91786 0 3 32000 0 0.731191381 23398.1242 0 4 32000 0 0.658730974 21079.39117 0 5 32000 200000 0.593451328 18990.4425 118690.2656 Part C. What is each project’s internal rate of return? The internal rate of return (IRR) is calculated using Excel with...
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...1 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 it will give the company the most accurate and valuable information for undergoing a new project. 2. Incremental Cash Flows (Year 1-5) Year 1: (Revenue: $21,000,000) – (Cost per Unit: $12,600,000) - ( Fixed Costs: $200,000) (Depreciation: $1,580,000) – (Taxes: $2,250,800) + (Depreciation: $1,5800) = $5,949,200 Year 2: (36,000,000) – (21,600,000) – ($200,000) – (1,580,000) – (4,290,800) + (1,580,000) = $9,909,200 Year 3: (42,000,000) – (25,200,000) – (200,000) – (1,580,000) – (5,106,800) + (1,580,000) = $11,493,200 Year 4: (24,000,000) – (14,400,000) – (200,000) – (1,580,000) – (2,658,800) + (1,580,000) = $6,741,200 Year 5: (15,600,000) – (10,800,000) – (200,000) – (1,580,000) – (1,026,800) + (1,580,000) = $3,573,200 The cash flows differ...
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