 We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

# Assume Polaris The whole doc is available only for registered users

A limited time offer! Get a custom sample essay written according to your requirements urgent 3h delivery guaranteed

Order Now

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. Ques 1. What is the amount of annual cash flows that Polaris must earn from these projects to have a 10% internal rate of return? Solution 1:Initial Investment=\$2.12 million=\$212000

Time Period (n) =10 years
At IRR,=10%,Net Present Value of Investment=0
i.e. Present Value of 10 years Cash Flow-Initial Investment=0 Initial Investment =Present Value of 10 year Cash Flow
We will get Present value of 10 year equal cash flow(CF) using annuity formula Initial Investment=CF*(1-(1+IRR)^(-n))/IRR
\$212000=CF*(1-(1+10%)^(-10))/10%
CF=\$212000*10%/(1-0.385543)
CF=\$212000*10%*0.614457
CF=\$345020.6
So Polaris must earn =\$345020.6 from these projects for 10 years so that IRR becomes 10%

Ques 2 . Assess Polaris’s most recent annual financial statements, from its website (polaris.com) or the SEC’s website (sec.gov). a. Determine the amount that Polaris invested in capital assets for that year. (Hint: Refer to the statement of cash flows.) 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? Ans 2 a )Using Polaris website and seeing it’s a cash flow statement we get for year 2012 at amount invested by Polaris in Capital Assets =\$103083 Ans 2 b) Time Period (n) =10 years.

Internal Rate of Return (IRR)=10%
Let Cash Flows which Polaris must earn every year on these new projects be CF We have \$103083=CF*(1-(1+IRR)^(-n))/IRR
CF=\$103083/(1-(1+10%)^(-10))*10%
CF=\$103083/0.614457%10%
CF=\$16776.28
So Polaris must earn =\$1677

##### Related Topics

We can write a custom essay

Order an essay 300+
Materials Daily 100,000+ Subjects
2000+ Topics Free Plagiarism
Checker All Materials
are Cataloged Well

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

Sorry, but only registered users have full access

immediately?

Thank You A Lot! Emma Taylor

online

Hi there!
Would you like to get such a paper?
How about getting a customized one?

Can't find What you were Looking for?