11-19. Fijisawa, Inc. is considering a major expansion of its product line and h

Question

11-19.

Fijisawa, Inc. is considering a major expansion of its product line and has estimated the following cash flows associated with such an expansion. The initial outlay would be $1,950,000, and the project would generate cash flows of $450,000 per year for six years. The appropriate discount rate is 9 percent.

a. Calculate the net present value.

b. Calculate the profitability index.

c. Calculate the internal rate of return.

d. Should this project be accepted? Why or why not?

PLEASE SHOW YOUR WORK

Explanation / Answer

the project cost is $1,950,000 and the inflows are $450,000 for 6 years. the discounting rate is 9%,

NPV= present value of cash inflow- present value of cash outflow (investment)

NPV= 450,000*4.486- 1,950,000

=2,018,700- 1,950,000= $68,700

b. profitibility index= present value of inflow/ investment

= 2,018,700/1,950,000= 1.0352

c. IRR of this project:

fake pay back period= 1,950,000/450,000= 4.333

at 6 th year 4.333 existed at 11% (aproximately)

yes, for all the calcualtions it is showing positive results only. so this project can accept.

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