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. please answer in table form
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| Year | 0 | 1 | 2 | 3 | 4 | 5 |
| Cash Inflow | 200,000 | 250,000 | 350,000 | 450,000 | 400,000 | |
| Scrap Value | 200,000 | |||||
| Initial Investment | -1,000,000 | |||||
| Total Cash Flow | -1,000,000 | 200,000 | 250,000 | 350,000 | 450,000 | 600,000 |
| Discounted Cash Flow | -1,000,000 | 181,818.18 | 206,611.57 | 262,960.18 | 307,356.05 | 372,552.79 |
| Cumulative Cash Flow | -1,000,000 | -818,181.82 | -611,570.25 | -348,610.07 | -41,254.01 | 331,298.78 |
Discounted Payback occurs in the year before the cumulative cashflow becomes positive
Discounted Payback period = Year of payback + (Cumulative cash flow / Next year cash flow) = 4 + (41,254.01/ 372,552.79) = 4.11 years
Using excel or a financial calculator and the total cash flows, IRR = 20.04%
