Question

(Related to Checkpoint 11.1 and Checkpoint​ 11.4) ​(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 ​$11 comma 300 comma 000​, and the project would generate cash flows of ​$1 comma 150 comma 000 per year for 20 years. The appropriate discount rate is 6.8 percent.

a. Calculate the NPV.

b. Calculate the PI.

c. Calculate the IRR.

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

a. The NPV of the expansion is ​$ ​(Round to the nearest​ dollar.)

b. The profitability index of the expansion is ​(Round to two decimal​ places.)

c. The IRR of the expansion is ​(Round to two decimal​ places.)

d. Should this project be​ accepted? Why or why​ not?  ​(Select from the​ drop-down menus.)

yes or no because the NPV is positive or negative the IRR is greater or less

than the required discount​ rate, and the PI is greater or less than 1.

Answer 1

NPV =

$1,006,382

PI = 1.1

IRR = 7.99%

Yes, the project should be accepted since the NPV is positive and IRR is greater than the required discount rate and the PI is greater than 1.

WORKINGS

Year	Initialcost	Cash flow		Net Cash flows
0	-11300000			-11300000
1		1,150,000		1150000
2		1,150,000		1150000
3		1,150,000		1150000
4		1,150,000		1150000
5		1,150,000		1150000
6		1,150,000		1150000
7		1,150,000		1150000
8		1,150,000		1150000
9		1,150,000		1150000
10		1,150,000		1150000
11		1,150,000		1150000
12		1,150,000		1150000
13		1,150,000		1150000
14		1,150,000		1150000
15		1,150,000		1150000
16		1,150,000		1150000
17		1,150,000		1150000
18		1,150,000		1150000
19		1,150,000		1150000
20		1,150,000		1150000