question archive Your grandmother, who recently passed away, left you a legacy of $ 1,000,000 and advised you to make an industrial investment with her desire
Your grandmother, who recently passed away, left you a legacy of $ 1,000,000 and advised you to make an industrial investment with her desire
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Your grandmother, who recently passed away, left you a legacy of $ 1,000,000 and advised you to make an industrial investment with her desire. Upon this, as a result of your feasibility study, you have determined that the XYZ investment is suitable; because you will also be able to benefit from government incentives. The feasibility study has also shown that your project, with an economic life of 5 years, provides $ 200,000, 250,000, 350,000, 450,000 and $ 400,000 cash flows annually and a scrap value of $ 200,000 at the end of its economic life. Assuming the required rate of return is 10%, calculate the discounted payback period and internal rate of return of your project. Before starting the calculation, briefly summarize in a few sentences in which industry and where you make the investment and why you prefer this sector. Use the discount factors in itslearning to discount cash-flow and clearly show your transactions. Good luck to all of you.
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ANSWER
| PROJECT | ||||
| CASH FLOWS | PV FACTOR @10% | PV OF CASH FLOWS | ||
| YEAR 0 | -1000000 | -1000000 | ||
| YEAR 1 | 200000 | 0.909 | 181818.18 | |
| YEAR 2 | 250000 | 0.826 | 206611.57 | |
| YEAR 3 | 350000 | 0.751 | 262960.18 | |
| YEAR 4 | 450000 | 0.683 | 307356.05 | |
| YEAR 5 | 400000 | 0.621 | 248368.53 | |
| =4 + (41254 / 248368.53) | =4 + 0.17 | |||
| Discounted payback period = | 4.17 years | |||
| IRR = | 16.80% | =IRR(VALUES) |
since the investment is huge investing in stock market is preferred
