Question
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 $3,000,000. The expected annual cash inflows from the project are as follows:
| Year | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|
| Cash Inflows ($) | 700,000 | 750,000 | 800,000 | 850,000 | 900,000 |
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:
- Calculate the net present value (NPV) of the project.
- Compute the internal rate of return (IRR).
- Determine the profitability index (PI).
- Assess the impact of the salvage value on the project's cash flows.
- Evaluate the sensitivity of NPV to changes in the discount rate.
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Principles Of Managerial Finance
Authors: Lawrence J. Gitman, Chad J. Zutter
13th Edition
9780132738729, 136119468, 132738724, 978-0136119463
