Financial decision making.
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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?
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Solution Summary
This solution is comprised of step-by-step calculation of the net present value, profitability index, internal rate of return, and a final decisio of whether to accept a project.
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Year 0 1 2 3 4 5 6
|------------------|----------------|----------------|--------------|---------------|--------------|
-1,950,000 450,000 450,000 450,000 450,000 450,000 450,000 ...
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