10. Fijisawa, Inc., is considering a major expansion of its product line and has

Question

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

Explanation / Answer

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

a. Calculate the net present value.

NPV= 68729

b. Calculate the profitability index.
1.035
Calculate the internal rateof return.
Internal rateof return.=10.42%

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