Reference no: EM13830882
Chad Rasmusen
Embry Riddle Aeronautical University
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.
https://ir.polaris.com/files/doc_financials/annual_reports/Polaris-2014-Annual-Report-Final2.pdf
Can you check this over?
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.)
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Year
|
Discount Rate 10%
|
|
|
|
1
|
0.9091
|
|
|
2
|
0.8264
|
|
|
3
|
0.7513
|
|
|
4
|
0.683
|
|
|
5
|
0.6209
|
|
|
6
|
0.5645
|
|
|
7
|
0.5132
|
|
|
8
|
0.4665
|
|
|
9
|
0.4241
|
|
|
10
|
0.3855
|
|
|
|
|
|
|
|
|
|
Total
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6.1446
|
|
|
|
|
|
|
|
|
|
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Investment
|
2120000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Cash Flow 345,020
|
|
Year
|
Discount Rate 10%
|
Annual Cash Flow
|
Discounted Cash Flow
|
|
1
|
0.9091
|
345,020
|
313654.55
|
|
2
|
0.8264
|
345,020
|
285140.50
|
|
3
|
0.7513
|
345,020
|
259218.63
|
|
4
|
0.683
|
345,020
|
235653.30
|
|
5
|
0.6209
|
345,020
|
214230.27
|
|
6
|
0.5645
|
345,020
|
194754.80
|
|
7
|
0.5132
|
345,020
|
177049.81
|
|
8
|
0.4665
|
345,020
|
160954.38
|
|
9
|
0.4241
|
345,020
|
146322.16
|
|
10
|
0.3855
|
345,020
|
133020.15
|
|
|
|
|
|
|
|
|
|
|
Total
|
6.1446
|
|
2119999
|
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).
Not sure if this is accurate!
The amount that Polaris invested in capital assets for the year was, 389,447 which is the capital spending for Polaris and reflects the amount that Polaris invested in fixed assets from the beginning of 2014 to the year end or December 31, 2014
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?
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: 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 f..
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