Case Study:
Assume Polaris invested $2.12 million to expand its manufacturing capacity. Assume that these projects have a ten-year life and that management requires a 10% internal rate of return on these assets.
1. What is the amount of annual cash flows that Polaris must earn from these projects to have a 10% internal rate of return? (Hint: Identify the ten-period, 10% factor from the present value of an annuity table, and then divide $2.12 million by the factor to get the annual required cash flows.)
2. Assess Polaris's most recent annual financial statements, from its website (polaris.com) or the SEC's website (sec.gov).
o a. Determine the amount that Polaris invested in capital assets for that year. (Hint: Refer to the statement of cash flows.)
o b. Assume a ten-year life and a 10% internal rate of return. What is the amount of cash flows that Polaris must earn on these new projects?