Walgreen is considering installing checkout kiosks in its stores nationwide which will reduce labor expense. The investment will be in 3 phases and is expected to increase after tax profits. The initial investment is $100mm followed by $60mm in year 1 and $50mm in year 2. The returns are projected to be: $10mm year 1, $20mm year 2, $40mm year 3, $70mm in each of years 4, 5 and 6. If all projected cash flows, except for the initial investment, are assumed to occur at year end, and Walgreen’s WACC is 8%, A) Draw a timeline, and B) What is the project’s NPV?
What do you estimate the IRR to be? < 6%___; 6%-8%___; 8%-10%___; or >10%___.