Assignment Caledonia Products Integrative Problem

Prepare a response to the Caledonia Products Mini-Case located near the end of Ch. 12 in Financial Management.

· Formulate answers to questions 1-7 Describe factors Caledonia must consider if it were to lease versus buying.

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?

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?

3. What is the project's initial outlay?

4. Sketch out a cash flow diagram for this project.

5. What is the project's net present value?

6. What is the internal rate of return?

7. Should this project be accepted? Why or whynot?