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Tesla, Inc. is evaluating the construction of a new manufacturing plant. The project requires an initial outlay of $15,000,000 and is expected to produce the
Tesla, Inc. is evaluating the construction of a new manufacturing plant. The project requires an initial outlay of $15,000,000 and is expected to produce the following annual cash inflows:
Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
---|---|---|---|---|---|---|---|---|---|---|
Cash Inflows ($) | 2,000,000 | 2,100,000 | 2,200,000 | 2,300,000 | 2,400,000 | 2,500,000 | 2,600,000 | 2,700,000 | 2,800,000 | 2,900,000 |
The discount rate for the project is 9%. The plant has a residual value of $1,000,000 at the end of its 10-year life. The corporate tax rate is 25%.
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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