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PepsiCo is considering a new project that requires an initial investment of $3,000,000. The expected annual cash inflows from the project are as follows: Year

PepsiCo is considering a new project that requires an initial investment of $3,000,000. The expected annual cash inflows from the project are as follows:

Year12345
Cash Inflows ($)700,000750,000800,000850,000900,000

The company uses a discount rate of 9% for its projects. The equipment has a salvage value of $100,000 at the end of 5 years. The corporate tax rate is 21%.

Required:

  1. Calculate the net present value (NPV) of the project.
  2. Compute the internal rate of return (IRR).
  3. Determine the profitability index (PI).
  4. Assess the impact of the salvage value on the project's cash flows.
  5. Evaluate the sensitivity of NPV to changes in the discount rate.

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