Question

Identify a profitable project using initial investment up to $ 50,000.

The discount rate must be bonds.

In an excel evaluate the project with VPN, IRR, recovery period, and rate of return.

justify the numbers they occupied, the conclusions of the metrics studied in the excel and the reasons why they consider the project as a good option.

Answer 1

Solution:

A profitable project would be investing in real estate property. Where you can buy the property and put it on rent.

The main reason is investing in this project is you can rental every month and also the capital gain happens for the property. I have explained the reasoning below as it might take more time to get back the initial amount invested just mere by rented apartment but the capital also increases every year.

If you take a 1000sq ft apartment and put it on rent you can get around $6000 on rent per year.

Investment in Real estate property
Year	Cash flow	Discount rate @10%	Present value
0	-50000	1,0000	-             50 000,0000
1	6000	0,9091	5 454,5455
2	6000	0,8264	4 958,6777
3	6000	0,7513	4 507,8888
4	6000	0,6830	4 098,0807
5	6000	0,6209	3 725,5279
6	6000	0,5645	3 386,8436
7	6000	0,5132	3 078,9487
8	6000	0,4665	2 799,0443
9	6000	0,4241	2 544,5857
10	6000	0,3855	2 313,2597
11	6000	0,3505	2 102,9634
12	6000	0,3186	1 911,7849
13	6000	0,2897	1 737,9863
14	6000	0,2633	1 579,9875
15	6000	0,2394	1 436,3523
16	6000	0,2176	1 305,7748
17	6000	0,1978	1 187,0680
18	6000	0,1799	1 079,1527
19	6000	0,1635	981,0479
20	6000	0,1486	891,8618
		Net present value	1 081,3823

It is a very good option as the net present value becomes positive and in 20 years and also the capital gain.

The recovery period would be after 18 years if the average return is 12% considering the property is rented.

The IRR is the internal rate of return at which the net present value is zero and we will discount at 10% rate considering the average return on all the investment also can be called as the opportunity cost.