Assume Polaris invested $2.12 million to expand its manufacturing capacity. Assu

Question

Assume Polaris invested $2.12 million to expand its manufacturing capacity. Assume that these projects have a ten-year life and that management requires a 10% internal rate of return on these assets. What is the amount of annual cash flows that Polaris must earn from these projects to have a 10% internal rate of return? (Hint: Identify the ten-period, 10% factor from the present value of an annuity table, and then divide $2.12 million by the factor to get the annual required cash flows.) Assess Polariss most recent annual financial statements, from its website (http://ir.polaris.com/investors/financial-information/default.aspx pg 75) a. Determine the amount that Polaris invested in capital assets for that year. (Hint: Refer to the statement of cash flows.) b. Assume a ten-year life and a 10% internal rate of return. What is the amount of cash flows that Polaris must earn on these new projects? Net income. . . . . . . . . . . . . . . . .(2015)$455,361 (2014)$454,029 (2013)$377,292

Explanation / Answer

CFAT x PVAIF0.10/1-10 = $2120000

CFAT x 6.1446 = 2120000

CFAT = $345018.39

Annual cash flows that polaris must earn is $345018.39

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