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.
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I will be investing in the diversified portfolio which will offer withrange of equities and debt instruments and I will be trying to provide with the long-term investment securities along with debt instruments which are Government Bonds and other corporate bonds which will offer with a better risk reward scenario and higher rate of return by elimination of risk to a large extent.
Discounted payback period will be the period in which the initial investment will be recovered.
Investment which will be recovered in first 4 years= (200000/1.1)+(250000/(1.1)^2+(350000/1.1)^3+(450000/(1.1)^4)= 9,58,746.
Discounted payback period will be= 4+(1000000-958746)/(400000/1.1)^5)= 4.17 years.
Hence, the discounted payback period is 4.17 years.
