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.

There are 2 answers on the chegg, which is correct 1) discounted payback period = 4.17 years IRR = 16.80 2) discounted payback period = 4.11 years IRR = 20.04 can you make the solution in a table form

DISCOUNTED PAYBACK PERIOD Compute the present value of each cash flow and then determine how long it takes to pay back on a discounted basis. Compare to a specified required period. Decision Rule: Accept the project if it pays back on a discounted basis within the specified time. COMPUTING DISCOUNTED PAYBACK Assume we will accept the project if it pays back on a discounted basis in 2 years. Compute the PV for each cash flow and determine the payback period using discounted cash flows. -Year 1: 165,000 63,120/1.121 = 108,643 -Year 2: 108,643 70,800/1.122 = 52,202 -Year 3: 52,202 91,080/1.123 = -12,627 project pays back in year 3 INTERNAL RATE OF RETURN This is the most important alternative to NPV. It is often used in practice and is intuitively appealing. It is based entirely on the estimated cash flows and is independent of interest rates found elsewhere IRR - DEFINITION AND DECISION RULE Definition: IRR is the return that makes the NPV = 0 Decision Rule: Accept the project if the IRR is greater than the required return. COMPUTING IRR If you do not have a financial calculator, then this becomes a trial and error process. Calculator -Enter the cash flows as you did with NPV. -Press IRR and then CPT. -IRR = 16.13% > 12% required return