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.)

 

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	6.1446
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?