WEEK 4 CALEDONIA PRODUCTS PAPER

 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 its internal rate or return?
7.      Should the project be accepted? Why or why not?
8.      In capital budgeting, risk can be measured from three perspectives. What are those three measures of a project’s risk?
9.      According to the CAPM, which measurement of a project’s risk is relevant? What complications does reality introduce into the CAPM view of risk, and what does that mean for our view of the relevant measure of a project’s risk?
10.  Explain how simulation works. What is the value in using a simulation approach?
11.  What is sensitivity analysis and what is its purpose?