XYZ Ltd

Finance May 27, 2021

XYZ Ltd. is looking to move to a new technology for its production. The cost of equipment will be $4 million. The company normally uses a discount rate of 12 per cent. Cash flows that the company expects to generate are as follows (10 Marks). Years CF 0 -$4 000 000 1-2 0 3-5 845 000 6-9 1 450 000 a.?Calculate the payback and discounted payback period for the project (3 Marks). b.?What is the NPV for the project? Should the company go ahead with the project? (3 Marks). c.?What is the IRR, and what would be the decision under the IRR (4 Marks)?

Expert Solution

a) Payback Period for the Project is 6.01 years and Discounted Payback Period is 8.78%.

b) NPV of the Project is $11,6979.48 Yes, The project should be accepted as NPV is positive.

c) IRR of the Project is 12.54%. As IRR is greater than Required rate of return. The project should be accepted.

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