Question
Google LLC is considering a project that requires an initial investment of $3,500,000 in new servers and infrastructure. The project is expected to generate the
Google LLC is considering a project that requires an initial investment of $3,500,000 in new servers and infrastructure. The project is expected to generate the following annual cash inflows:
| Year | 1 | 2 | 3 | 4 | 5 | 6 |
|---|---|---|---|---|---|---|
| Cash Inflows ($) | 600,000 | 700,000 | 800,000 | 900,000 | 1,000,000 | 1,100,000 |
The company uses a discount rate of 10%. The equipment has an estimated salvage value of $100,000 at the end of its 6-year life. The corporate tax rate is 28%.
Required:
- Calculate the net present value (NPV) of the project.
- Compute the internal rate of return (IRR).
- Determine the profitability index (PI).
- Assess the payback period of the project.
- Evaluate the sensitivity of NPV to changes in annual cash inflows.
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Financial Accounting
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann
2nd Edition
0078110823, 9780078110825
