Bus 401 - Principles of Finance

Final Project

The goal of every company is to create profits for itself as well as its stakeholders. Stakeholders are “A person, group or organization that has interest or concern in an organization” (Business Dictionary, n.d.). Stakeholders can be employees, their shareholders, as well as other companies that they do business with. Looking at a company there are many ways to see just how well they are performing. We will look at a particular company’s project within this paper and see several aspects of their business and analyze the performance. The examination will show whether Caledonia will focus on cash flow or accounting profits, the impact of depreciation and sunk, the projects initial outlay, differential cash flows over the project life, terminal cash flow. We will also view the cash flow diagram, the net present value, internal rate of return, and decide whether the project should be accepted as well as other decisions.

The question of whether to focus on cash flows or accounting profits is a legitimate one. Following the cash flows has many more advantages over the accounting profits due to this being money that the company can show and reinvest. This will also allow us to see what the right time to act is and possible impacts on projects. When evaluating projects we can look at cash flows to see if the projected impacts are in fact occurring or what possible changes need to be made. Also focusing on cash flow will help us to move these additions on company money to make sure that he right thing is being done with the money. Accounting profits do not come in at the same time the money is received. For example, sales can be calculated at the time the sale is completed, but the money from that sale can come sometime in the future.

There are many impacts to cash flow. For instance depreciation does not necessary impact cash flows however, this can have an impact on the tax amount the company pays (EBT). Depreciation costs can increase...