Financial Management Heavenly Food Case Study

Heavenly Foods Corporation Case Study
By Desiree Healy

interrogate 1
Incremental bills flow is defined as the spare operating cash flow that an organization receives from taking on a new cypher. A positive incremental cash flow means that the companys cash flow will add-on with the acceptance of the bemuse.

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If the project is financed in part by debt, the interest expense should non be included in the cash flow statement be take a leak the apostrophize of debt is already embedded in the cost of gravid. The projects cost of capital is the rate of return necessary to play all of the firms investors. We discount a projects cash flows by its risk- set cost of capital, which is a weighted average (WACC) of the cost of debts, preferred stock, and common equity, adjusted for the projects risk and debt capacity.
headland 2
The $262,500 test merchandise cost should not be included in the capital budget analysis because it is a sunk cost. Sunk cost are defined as an outlay related to the project that was incurred in the past and cannot be recovered in the time to come regardless of whether or not the project is accepted. Therefore, sunk be are not incremental costs and are not relevant in a capital budgeting analysis.




Question 3

Question 4
If Heavenly Foods does not have an opportunity to countenance the space, it is not free or costless to the lite point of intersection project. Instead it is an opportunity cost of $43,750 that must get charged to the new project and failing to do so would cause the new projects calculated NPV to be as well high.
Question 5
Yes the erosion of profits should be charged to the High Energy Lite product due to cannibalization, a negative within firm externality where the new business line eats into the profits of the existing business. Therefore the new products incremental cash flow must be reduced by the amount of the cash flow lost to the previous product....If you unavoidableness to get a full essay, order it on our website: Orderessay



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