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Capital Budgeting of a Major Expansion of Product Lines

XYZ Co. is considering a major expansion of its product line and has estimated the following cash flows associated with such an expansion. The initial investment would be $2,500,000 and the project would generate incremental cash flows of $750,000 per year for six years. The cost of capital is 11 percent. Calculate the following:

i. Calculate the NPV
ii. Calculate the PI
iii. Calculate the IRR
iv. Should this project be accepted?

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Solution Preview

Please see the attached file

i. Calculate the NPV

NPV = $672,903.39

ii. Calculate ...

Solution Summary

The solution explains how to calculate the NPV, PI, IRR and to determine whether to accept or reject the project