The following information is available about an investment opportunity. Investment will occur at time 0 and sales will commence at time
1. Initial cost$28 million
Unit sales 400,000
Selling price per unit, this year$60.00
Variable cost per unit, this year$42.00
Life expectancy 8 years
Salvage value$0
Depreciation Straight-line
Tax rate37%
Nominal discount rate10.0%
Real discount rate10.0%
Inflation rate0.0%
a. Prepare a spreadsheet to estimate the project's annual after-tax cashflows.
b. Calculate the investment's internal rate of return and its NPV.
c. How do your answers to questions (a) and (b) change when you assume a uniform inflation rate of 8 percent a year over the next10years?