I need help answering (a)-(d). (NPV, PI, and IRR calcufations) Fijisawa Inc. is

Question

I need help answering (a)-(d).

(NPV, PI, and IRR calcufations) 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 oullay would be $2,000,000, and the project would generate incremental free cash flows of $550,000 per year for 6 years. The appropriate required rate of return is 7 percent a. Calculate the NPV b. Calculate the P c. Calculate the IRR. d. Should this project be accepted? a. What is the project's NPV? (Round to the nearest dollar.) b. What is the project's Pr (Round to three decimal places.) c. What is the project's IRR? loudo w deinl lato) d. Should this project be accepted? (Select the best choice below.) O A. Yes. The project should be accepted because the project's NPV is positive, Pl is greater than one, and IRR is greater than the required rate of return O B. No. The project should be rejected because the project's NPV is negative, Pl is less than one, and IRR is less than the required rate of return.

Explanation / Answer

a. NPV $ 6,21,597 Working: Present Value of annuity of 1 for 6 years = (1-(1+i)^-n)/i where, = (1-(1+0.07)^-6)/0.07 i 7% = 4.76654 n 6 Present Value of annual cash inflows $       5,50,000 x 4.76654 = $       26,21,597 Less:Cost of project $       20,00,000 NPV $          6,21,597 b. PI         1.311 Working: PI = Present value of cash inflows /Cost of project = $ 26,21,597 / $     20,00,000 =              1.311 c. IRR 17.20% IRR is the rate, at which NPV is zero. NPV at 20% Present Value of annuity of 1 for 6 years = (1-(1+i)^-n)/i where, = (1-(1+0.20)^-6)/0.20 i 20% = 3.32551 n 6 Present Value of annual cash inflows $       5,50,000 x 3.32551 = $       18,29,031 Less:Cost of project $       20,00,000 NPV $        -1,70,969 Now, NPV at 7% $       6,21,597 NPV at 20% $     -1,70,969 IRR = 7%+(20%-7%)*(621597/(621597+170969)) = 17.20% d. A.Yes, The project should be accepted because the project's NPV is positive, PI is greater than one and IRR is greater than the required rate of return.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.