PART B Assume that the bank decided to give a loan of $ 59 million to Nivea Corporation (recorded for initial year). Nivea-Corporation invested the amount in a project and generated the following sequence of cash flows over six years: YearCash Flow ($ million)0-59.0014.0025.0036.0047.3358.0068.25 Calculate the Payback period Calculate the Net Present Value (NPV) and the Profitability Index (PI) over the six years. Assume any discount rateThis project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the project’s terminal value, assuming that cash flows after year 6 continue at $8.25 per year perpetuity and then recalculate the investment’s NPV.Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the

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Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 16E

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PART B

Assume that the bank decided to give a loan of $ 59 million to Nivea Corporation (recorded for initial year). Nivea-Corporation invested the amount in a project and generated the following sequence of cash flows over six years:

Year	Cash Flow ($ million)
0	-59.00
1	4.00
2	5.00
3	6.00
4	7.33
5	8.00
6	8.25

Calculate the Payback period
Calculate the Net Present Value (NPV) and the Profitability Index (PI) over the six years. Assume any discount rate
This project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the project’s terminal value, assuming that cash flows after year 6 continue at $8.25 per year perpetuity and then recalculate the investment’s NPV.
Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the

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