Question

table below) with several cashflows. Please provid plans to invest in the coffee market. A broker suggested an investment option (see the with several cashflows. Please provide the most accurate estimation of the future gains for Star Cafeteria if the company decides to undertake the suppe Year Amount $300 M $200 M $200 M $200 M $200 M $200 M

Answer 1

According to the given investment details and cash inflows, Let, IRR = R

Then,

300 = 200*(1-1/(1+R)^5)/R

At R = 60%

PW of cash inflows = $301.54 M

At R = 61%

PW of cash inflows = $297.56 M

As per the method of interpolation,

R = 60% + ((301.54-300)/(301.54-297.56))*(61%-60%)

R = 60.39%

Hence, the given tabular data, gives 60.39%, if minimum expected return is less than 60.39%, then proposal should be accepted.

If minimum expected return is more than 60.39%, then proposal should be rejected.

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Further, as per the given tabular data,

Payback period = 1.5 years to recover $300 M

So, if payback period desired is more than 1.5 years, then proposal should be accepted.