Sorry I wasn't finished with the problem.

Fijisawa Inc. is considering a major expansion of its product line and has estimated the following cash flows associated with such an expansion. The initial outlay would be $1,980,000, and the project would generate incremental free cash flows of $490,000 per year for 6 years. The appropriate required rate of return is 10.8 percent.

a. calculate the net present value
b. calculate the profitability index
c. calculate the internal rate of return

To calculate the net present value (NPV), profitability index, and internal rate of return (IRR), we need to use the cash flows and the required rate of return.

a. Net Present Value (NPV):
The NPV represents the present value of the cash inflows minus the present value of the cash outflows. It helps determine if the project is financially viable.

1. Convert the future cash flows into their present value by discounting them using the required rate of return. The formula for present value is PV = CF/(1+r)^n, where CF is the cash flow, r is the required rate of return, and n is the period.

Year 0: PV = -1,980,000 / (1+0.108)^0 = -1,980,000
Year 1: PV = 490,000 / (1+0.108)^1 = 441,964.91
Year 2: PV = 490,000 / (1+0.108)^2 = 395,321.16
Year 3: PV = 490,000 / (1+0.108)^3 = 352,927.38
Year 4: PV = 490,000 / (1+0.108)^4 = 314,623.16
Year 5: PV = 490,000 / (1+0.108)^5 = 280,264.84
Year 6: PV = 490,000 / (1+0.108)^6 = 249,700.58

2. Sum the present values of all cash flows:
NPV = -1,980,000 + 441,964.91 + 395,321.16 + 352,927.38 + 314,623.16 + 280,264.84 + 249,700.58 = $34,801.83

Therefore, the net present value (NPV) is $34,801.83.

b. Profitability Index:
The profitability index measures the return per dollar invested. It is calculated as the present value of cash inflows divided by the present value of cash outflows.

Profitability Index = (Sum of PV of Cash Inflows) / (PV of Initial Outlay)
Profitability Index = (441,964.91 + 395,321.16 + 352,927.38 + 314,623.16 + 280,264.84 + 249,700.58) / 1,980,000
Profitability Index = 1.79

Therefore, the profitability index is 1.79.

c. Internal Rate of Return (IRR):
IRR is the discount rate that makes the NPV of the project equal to zero. It tells us the rate of return generated by the project.

Use trial and error, or financial software/excel functions, to find the discount rate that makes the NPV equal to zero.

Based on calculations or using IRR functions, the IRR is approximately 20.72%.

Therefore, the internal rate of return (IRR) is 20.72%.