Question: Amazon.com, Inc. is considering the development of a new distribution center. The project requires an initial investment of $10,000,000 and is expected to produce the

Amazon.com, Inc. is considering the development of a new distribution center. The project requires an initial investment of $10,000,000 and is expected to produce the following annual cash inflows:

Year12345678910
Cash Inflows ($)1,500,0001,600,0001,700,0001,800,0001,900,0002,000,0002,100,0002,200,0002,300,0002,400,000

The discount rate for the project is 8%. The distribution center has a residual value of $500,000 at the end of its 10-year life. The corporate tax rate is 24%.

Required:

  1. Calculate the net present value (NPV) of the project.
  2. Compute the internal rate of return (IRR).
  3. Determine the discounted payback period.
  4. Assess the impact of the residual value on the project's NPV.
  5. Evaluate the sensitivity of the project's NPV to changes in the discount rate.

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