Caledonia Essay

956 Words Aug 31st, 2012 4 Pages
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Essay Sample: Page 2
Profits indicate how much money is left after the company has sold its good and service from a performance standpoint. A company needs to be profitable, but it also needs to ensure there is cash available when needed. The cash flow statement allows the company to plan for purchasing raw materials and paying off taxes, debt and any other expenses. A company can be profitable, but can still go bankrupt because it does not have money to pay the bills or purchase raw materials.

Question 3

The initial outlay of the project is calculated as follows.

CAPEX + NOWC

= ($7,900,000 +$100,000) = ($100,000)

= $8,100,000

The initial outlay for the project is $8,100,000.

Question 4

For cash flow diagram, you need to consider your Operating cash flow plus or minus your change in working capital. For this project

Initial cash outlay: $8,100,000

Year 1 = $3,956,000

Year 2= $8,416,000

Year 3=$10,900,000

Year 4=$8,548,000

Year5=$5,980,400

Question 5

. The formula for Net Present Value (NPV) is as follows

NPV= (-8,100,000)+3,956,000/1.15+8,416,000/1.15²+10,900,000/1.15³+8,548,000/1.154+5,980,000/1.155=$16,731,096

The NPV for this project is: $16,731,096

6. The project’s Internal Rate of Return is as follows

6. At IRR, NPV = 0

0 = -8,100,000 + 3,956,000/ (1 + IRR) + 8,416,000/ (1 + IRR) 2 + 10,900,000/ (1 + IRR) 3 + 8,548,000/ (1 + IRR) 4 + 5,980,000/ (1 + IRR) 5

Solving for IRR,

IRR = 77%

The IRR for this project is 77%.

Question 7

Should the
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