Caledonia Products Integrative Problem As a newly assigned assistant financial analyst at Caledonia Products, Team B has been charged with calculating the cash flows associated with the production of a new fad product which is expected to last for a five year period, provide a recommendation and respond to a number of questions on the capital-budgeting process. They must also factor in whether it should lease versus buying the equipment. Cash Flows versus Accounting Profits Caledonia should
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Financial Management Part 1 : Multiple choices: 1. The approach focused mainly on the financial problems of corporate enterprise. a. Ignored non-corporate enterprise 2. These are those shares, which can be redeemed or repaid to the holders after a lapse of the stipulated period. c. Redeemable preference shares 3. This type of risk arises from changes in environmental regulations, zoning requirements, fees, licenses and most frequently taxes. b. Domestic risk 4. It is the cost of capital
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ranking methods are better? Why? Different quantitative methods are * Net Present Value * Internal rate of return * Payback period * Discounted payback period * Profitability Index NPV: IRR: 1) Project Ranking based on IRR: | | | | | Rank | Project No | IRR | 1 | 7 | 15% | 2 | 4 | 12.33% | 3 | 8 | 11.41% | 4 | 3 | 11.33% | 5 | 5 | 11.12% | 6 | 1 | 10.87% | 7 | 6 | 10% | 8 | 2 | 6.31% | Payback Period: 1) Project Ranking based on Pay Back Period:
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COMPUTING NPV and IRR PCP Pj vs STATUS QUO STRYKER Case decrease in purchases from contract manufacturers less incremental Stryker manufacturing costs Operating income from project less architect and engineering fees pre-tax income less taxes at 36% After-tax income add back Building depreciation add back Equipment depreciation add back It & other equipment depreciation Subtotal plus NCW Savings Subtotal Cash Flow Terminal Value, at book value Hurdle rate Discount factor at 15% PV of Cash Flows Sum
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the internal rate of return, we should be able to see which projects Star should undertake. Conclusion: After calculating the NPV and the IRR for each project, I have determined that both the dishwasher and the trash compactor projects should be pursued. Both of them have shown positive NPVs at the new discount rate of 11.58% (WACC). Both projects also yielded IRRs greater than the given hurdle rate. The disposal did not meet these requirements and therefore should not be undertaken. Based
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Phuket Beach Hotel Case Analysis Phuket Beach Hotels (PBH) management has been approached by Planet Karaoke Pub (PKP) to lease a vacant space within the hotel. Management is intrigued by the offer because the space is currently not being used. Due to the recent success of karaoke pubs management is also considering creating a pub which they would call Beach Karaoke Pub (BKP). Finally, there is a possibility that the best option will be to seek an entirely
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Internal Rate of Return NPV @ 5% NPV Year 0 -7,20,000 34,826 Taking IRR at 5% and 12% IRR Traditional Formula = LR + { NPV @ LR/NPV @ LR - NPV @ HR} X (HR-LR) IRR 0.064017186 6.401718635 Year 1 Year 2 69523.80952 66213.15193 Year 3 63060.14469 Year 4 60057.28066 Year 5 495972.0634 Therefore Internal Rate of Return for this Project is 6.69600 A) Payback Period Year 0 1 2 3 4 5 Future Cash Flows -7,20,000 73,000 73,000 73,000 73,000 6,33,000 PV of FCF Accumulated NPV on FCF 65178.57143 58195
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recommends using 12 pt. Times New Roman font. 1. Subject Matter a. Project 1- clothing line b. Project 2- customized dolls 2. Methods of Analysis c. NPV d. IRR e. Payback Period f. Profitability Index 3. Findings g. Comparative Analysis for Each Project i. NPV, IRR, Payback Period, PI 4. Conclusions h. Weaknesses of each project 5. Recommendations i. What we recommend 6. Limitations of Report Introduction
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charges for the use of excess agglomerator capacity OPTIONS • Evaluation Methods – NPV, IRR, Payback, Alternative 1, 2, or 3 o Test Market Expenses – Include or Exclude o Overhead Expenses – Include or Exclude o Erosion of Jell-O contribution margin – Include or Exclude o Allocation of charges for the use of excess capacity – Include or Exclude • Accept or Reject the Super Project RECOMMENDATIONS 1. NPV is the best capital budgeting method for evaluating projects. 2. Do not include test
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2015 Adil Amin Muhammad Tariq Shaban Tayyab Furqan Fundamentals of Corporate Finance 3/8/2015 2015 Adil Amin Muhammad Tariq Shaban Tayyab Furqan Fundamentals of Corporate Finance 3/8/2015 Auto Doctor Auto Doctor ___________________________________________________________________________________________________ PROJECT _____________________________________________ Submitted to: Prof. Syed Sadir Ali Zaidi Submitted by: * Adil Amin (2013-MBA-015) * Tayyab Furqan
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