Waste Mall is a small regional waste management company. After having agood years profit last year, they have decided to embark on a capital - intensive project. Following a successfully consultation with various stakeholders WasteMall is considering buying a recycling machinery that is set to improvecashflow in the coming years. It is expected that the project will cost a total of £5,000,000 which would beinvested in stages. The initial investment would require Waste Mall to spend £3,000,000 and would expect to get cash inflows of £1,500,000 in the first Year, £500,000 in the second year and £2,000,000 in the third year. Afterwhich the remaining £2,000,000 would be invested in the fourth year. In thefifth and final year the expected cash inflow will amount to £3,000,000. Waste Mall has a cost of capital of 10% YOU ARE REQUIRED TO:A. Calculate the discounted payback period and the Net Present Value forthe above project15 MarksB. Using the above techniques briefly discuss if Waste Mall should invest inthe project or not. The target payback period is 3 years.5 MarksC. To better evaluate the project, Waste Mall has asked you to discuss thebenefits of using NPV instead of IRR to appraise the project
Waste Mall is a small regional waste management company. After having agood years profit last year, they have decided to embark on a capital - intensive project. Following a successfully consultation with various stakeholders WasteMall is considering buying a recycling machinery that is set to improvecashflow in the coming years. It is expected that the project will cost a total of £5,000,000 which would beinvested in stages. The initial investment would require Waste Mall to spend £3,000,000 and would expect to get cash inflows of £1,500,000 in the first Year, £500,000 in the second year and £2,000,000 in the third year. Afterwhich the remaining £2,000,000 would be invested in the fourth year. In thefifth and final year the expected cash inflow will amount to £3,000,000. Waste Mall has a cost of capital of 10% YOU ARE REQUIRED TO:A. Calculate the discounted payback period and the Net Present Value forthe above project15 MarksB. Using the above techniques briefly discuss if Waste Mall should invest inthe project or not. The target payback period is 3 years.5 MarksC. To better evaluate the project, Waste Mall has asked you to discuss thebenefits of using NPV instead of IRR to appraise the project
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Waste Mall is a small regional waste management company. After having agood years profit last
year, they have decided to embark on a capital - intensiveproject. Following a successfully
consultation with various stakeholders WasteMall is considering buying a recycling machinery that
is set to improvecashflow in the coming years.It is expected that the project will cost a total of
£5,000,000 which would beinvested in stages. The initial investment would require Waste Mall to
spend £3,000,000 and would expect to get cash inflows of £1,500,000 in the firstYear, £500,000 in
the second year and £2,000,000 in the third year. Afterwhich the remaining £2,000,000 would be
invested in the fourth year. In thefifth and final year the expected cash inflow will amount to
£3,000,000. Waste Mall has a cost of capital of 10% YOU ARE REQUIRED TO:A. Calculate the
discounted payback period and the Net Present Value forthe above project15 MarksB. Using the
above techniques briefly discuss if Waste Mall should invest inthe project or not. The target
payback period is 3 years.5 MarksC. To better evaluate the project, Waste Mall has asked you to
discuss the benefits of using NPV instead of IRR to appraise the project
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