I am considering a major expansion of a product line hand and have 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 from cash flows of $450,000 per year for six years. The appropriate required rate of return is 9 percent.
calculate the net present value, profitability indes, and the internal rate or return.

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Originally Posted by Blessingflow

I am considering a major expansion of a product line hand and have estimated the following free cash flows associated with such an expansion. The intial outlay associated with the expansion would be $1,950,000, and the project would generate from cash flows of $450,000 per year for six years. The appropriate required rate of return is 9 percent.
calculate the net present value, profitability indes, and the internal rate or return.

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NPV represents $1,950,000 Present value before investment

FV or PI (future value minus interest rate) represents $450,000 per year for six years or
(24 quarters @ $18,750 per quarter over 6 years

Rate of return represents the Interest rate of 9 percent or 0.09 after the longterm estimated future value is calculated

$1,950,000 + 450,000 (6)
$1,950,000 + 2,700,000 =
$4,650,000 * (0.09) =
$418,500 Expected Return on Investment Amount at 9 percent interest rate of return

Hope this helps.
Tonya M. Hall, MS