Capital Budgeting Methods Questions

10-5. (NPV, PI, and IRR calculations) 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 would be $1,950,000, and the project would generate incremental free cash
flows of $450,000 per year for 6 years. The appropriate required rate of return is 9 percent.
1.
2.
3.
4.
Calculate the NPV.
Calculate the PI.
Calculate the IRR.
Should this project be accepted?
10-6. (Payback period, NPV, PI, and IRR calculations) You are considering a project with an
initial cash outlay of $80,000 and expected free cash flows of $20,000 at the end of each year for
6 years. The required rate of return for this project is 10 percent.
1.
2.
3.
4.
What is the project’s payback period?
What is the project’s NPV?
What is the project’s PI?
What is the project’s IRR?
10-7. (NPV, PI, and IRR calculations) You are considering two independent projects, project A
and project B. The initial cash outlay associated with project A is $50,000, and the initial cash
outlay associated with project B is $70,000. The required rate of return on both projects is 12
percent. Calculate the NPV, PI, and IRR for each project and indicate if the project should be
accepted.