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Toyota Motor Corporation is considering a capital investment project that requires an initial outlay of 100 million. The project is expected to produce the following
Toyota Motor Corporation is considering a capital investment project that requires an initial outlay of ¥100 million. The project is expected to produce the following annual cash flows:
Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
---|---|---|---|---|---|---|---|---|
Cash Flows (¥ million) | 15 | 20 | 25 | 30 | 35 | 40 | 45 | 50 |
The discount rate for the project is 10%. The residual value of the investment at the end of 8 years is estimated to be ¥10 million. The corporate tax rate applicable is 28%.
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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