Question

(Calculating NPV,​ PI, and​ IRR) ​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 ​$10,800,000​, and the project would generate cash flows of ​$1,250,000 per year for 20 years. The appropriate discount rate is 9.0 percent.

a. Calculate the NPV.

b. Calculate the PI.

c. Calculate the IRR.

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

Answer 1

• Press the CF button.
• CF0= -$10,800,000.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the interest rate of 9%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The present value of investment is $610,682.09.

b.Profitability Index= PV of future cash flows/Initial investment

                                       = $610,682.09/ $10,800,000 = 0.0565.

c. The question is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$10,800,000.
• Cash flow for each year is entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the IRR button to get the IRR of the project.

The IRR is 9.79%.

d.The project should be accepted since it has a positive net present value.