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 $1,950,000, and the project would generate free cash flows of $550,000 per year for 7 years. The appropriate required rate of return is 9 percent.
Required:
Question 1: Calculate the NPV.
Question 2: Calculate the PI.
Question 3: Calculate the IRR.
Question 4: Should this project be accepted?
Note: Provide support for your underlying principle.