Following information describes the new project cost of new

Reference no: EM13394123

Following information describes the new project: Cost of new plant and equipment: $ 7,900,000 Shipping and installation costs: $ 100,000 Unit sales: Year Units Sold 1 70,000 2 120,000 3 140,000 4 80,000 5 60,000 Sales price per unit: $300/unit in years 1–4 and $260/unit in year 5. Variable cost per unit: $180/unit Annual fixed costs: $200,000 per year Working capital requirements: There will be an initial working capital requirement of $100,000 just to get production started.

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?
3 What is the project’s initial outlay?
4 Sketch out a cash flow diagram for this project.
6 What is its internal rate of return?
7 Should the project be taken on?

Reference no: EM13394123

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