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.

Cash flow at time 0 = $1,000,000
Cash flow at time 1 = $200,000
Cash flow at time 2 = $250,000
Cash flow at time 3 = $350,000
Cash flow at time 4 = $450,000
Cash flow at time 5 = $400,000

Interest rate = 10%

Now calculating the pv of the series of the cash flow =
-$1,000,000 + $200,000/(1.10)^1 + $250,000/(1.10)^2 + $350,000/(1.10)^3 + + $450,000/(1.10)^4 + $400,000/(1.10)^5

= -$,1000,000 + $181,818.18 + $206,611.57 + $262,960.18 + $307,356.05 + $248,368.53 = $207,114.51

Thus, the discounted payback period = 4 + 41,254/248,368.53 = 4.17 years


Now, to calculate the value of IRR,
$1,000,000 = $200,000/(1 + r%)^1 + $250,000/(1 + r%)^2 + $350,000/(1 + r%)^3 + + $450,000/(1 + r%)^4 + $400,000/(1 + r%)^5
Solving this the value of r comes out to be = 16.80

Thus the value of IRR = 16.80%

The industry where the fund of 1 million can be invested is startups using various platforms that allows us to buy equity in the startups , being one of the most rewarding sectors if you planning to invest money in the for medium term to long term the rewards it can provide is immense.