Problem:
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 $2,030,000, and the project would generate free cash flows of $400,000 per year for six years. The appropriate discount rate is 3.7percent.
Required:
Question 1: Calculate the net present value.
Question 2: Calculate the profitability index.
Question 3: Calculate the internal rate of return.
Question 4: Should this project be accepted? Why or why not?
Note: Please provide reasons to support your answer.