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Submitted by aoel.meg on Wed, 2017-01-11 11:18
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FINANCE 2 - NEED DONE WITHIN 1 HOUR

(NPV, PI, and IRR calculations) 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 $1,960,000, and the project would generate cash flows of $380,000 per year for six years. The appropriate discount rate is 4.0 percent.

  1. Calculate the net present value.
  2. Calculate the profitability index.
  3. Calculate the internal rate of return.
  4. Should this project be accepted? Why or why not?
Answer
Submitted by pavan1001 on Wed, 2017-01-11 11:36
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SOLUTION :

 

xx

 

xxx = - 1960000 x xxxxxxxxxxxxx -1)/(0.04*1.04^6) = xxxxx xxx (ANSWER).

 

b.

xx

xx x PV of xxxxxx x Investment =380000(1.04^6 xxxxxxxxxxxxxxxxx x 1960000

x xxxxxxx x 1960000

x xxxxx xxxxxxxxx

 

c.

 

xxxxx online calc. xxx x http://vindeep.com/Calculators/IRRCalculator.aspx x

 

xxx xx xxx data, press calculate, we xxxx IRR = 4.50 % xxxxxxxxx

 

d.

 

 

xxxxxxx should be xxxxxxxx xx NPV xx xxxxxxxxx PI is greater xxxx 1, xxx IRR is higher xxxx discount xxxx xx 4%.

 


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Answer
Submitted by finance Tutor on Wed, 2017-01-11 11:35
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finance 2

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xxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxx PI, xxx IRR xxxxxxxxxxxxx Fijisawa, xxxx is considering x xxxxx expansion xx its xxxxxxx line xxx has estimated xxx xxxxxxxxx xxxx xxxxx associated xxxx such xx xxxxxxxxxx The xxxxxxx xxxxxx xxxxx xx xxxxxxxxxxx and xxx xxxxxxx xxxxx xxxxxxxx xxxx flows xx xxxxxxxx per year xxx six xxxxxx The xxxxxxxxxxx xxxxxxxx rate is 4.0 xxxxxxxx
a. Calculate the xxx xxxxxxx value.
xxxxxxxxxxxx PVIFPresent value
x x xxxxxxxxxxx x* (1,960,000)
xx 380,000xxxxxx x xxxxxxx
2 x xxxxxxx xxxxxx * 351,331
3x xxxxxxxxxxxxx* 337,819
xx 380,0000.854804191 x 324,826
x * xxxxxxx 0.8219* xxxxxxx
xx xxxxxxx0.7903 * xxxxxxx
xxx xxxxxxx valuex xxxxxxxxx
xx xxxxxxxxx the xxxxxxxxxxxxx xxxxxx
xxxx xxxxxxxx xxxxxxxxxxx xxxxx
x * 380,000xxxxxx* 365,385
x x xxxxxxx xxxxxxx 351,331
x * xxxxxxx0.8890x 337,819
x* 380,000 0.854804191* xxxxxxx
5* 380,000 xxxxxx x xxxxxxx
x x xxxxxxxxxxxxx x 300,320
x 1,992,012.01
Profitability index x Present xxxxx xx xxxx xxxxxxxxxxxxxxx value of cash outflows
PV of cash xxxxxxx* xxxxxxxxxxxx
PV of xxxx xxxxxxxxx 1,960,000
Profitability xxxxx x xxxx
c. xxxxxxxxx the xxxxxxxx xxxx xx return.
Year xxxxxxxx
x * (1,960,000)
1x xxxxxxx
x * xxxxxxx
xx 380,000
4 x 380,000
5* xxxxxxx
6x 380,000
xxxxxxxx rate xx xxxxxx 4.50%


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