Question 4

In light of the increased awareness for the need to adapt to climate change, you have been asked to determine the viability of an investment of $410,000,000 in Environ4Us Ltd which manufactures large batteries for storing solar energy. You have obtained the following data about their main project which is expected to operate for 5 years. Specifically, you are required to use 2 different financial modelling techniques to evaluate this possible investment.

Year	Cash sales ($000s)	Cash expenses ($000s)	Depreciation ($000s)	Net profit before tax ($000s)	Tax @ 30% ($000s)	Annual Cash Flow ($000s)
1	450,000	290,000	70,000
2	525,000	305,000	60,000
3	550,000	320,000	50,000
4	595,000	400,000	45,000
5	620,000	440,000	40,000

You have been advised that the minimum after tax rate of return is 10% and the tax rate is 30%.

1. Complete the table above and calculate the net present value

1. Based solely on your Net Present Value calculation, would you recommend an investment in Environ4Us Ltd project? Explain.

1. Calculate the Payback period

1. If the investment team base their decision solely on requiring a payback period of no more than 2 years, would you recommend an investment in Environ4Us Ltd project?Explain.

1. Name another financial modelling technique that could be used to assess the viability of an investment project?