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Amazon.com, Inc. is considering the development of a new distribution center. The project requires an initial investment of $10,000,000 and is expected to produce the
Amazon.com, Inc. is considering the development of a new distribution center. The project requires an initial investment of $10,000,000 and is expected to produce the following annual cash inflows:
Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
---|---|---|---|---|---|---|---|---|---|---|
Cash Inflows ($) | 1,500,000 | 1,600,000 | 1,700,000 | 1,800,000 | 1,900,000 | 2,000,000 | 2,100,000 | 2,200,000 | 2,300,000 | 2,400,000 |
The discount rate for the project is 8%. The distribution center has a residual value of $500,000 at the end of its 10-year life. The corporate tax rate is 24%.
Required:
- Calculate the net present value (NPV) of the project.
- Compute the internal rate of return (IRR).
- Determine the discounted payback period.
- Assess the impact of the residual value on the project's NPV.
- Evaluate the sensitivity of the project's NPV to changes in the discount rate.
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