Question

A power plant was installed spending on FA NWC Rs.500 million. It is expected to give 5 million Rs/yr operating cash flows for 30 years. After that it would be scrapped at disposal value of 3 million at the end of the 30th year. What is the IRR of this project?

Part 2: You want bank balance of 5 million after 5 years. You intend to save 0.70 million(that is 700,000) end of every year. Bank pays 8%/yr interest. How much you should deposit today in the bank?

Answer 1

We can calculate the IRR in the excel sheet as follows:

Using the Initial Capital Investment of Rs 500 Million and for remaining 30 years the cash inflows are Rs 5 Million/yr the IRR comes out to be :

So, the IRR comes out to be -6.49%

If we consider the Salvage value in the last year then the cash flows are Rs 8 Million in year 30, then the IRR comes out to be -6.29%

B) Future Value (fv) = 5 Million

Interest rate (rate) = 8%

Period (nper) = 5 years

Yearly deposits (pmt) = 0.70 million

Using the PV function in excel sheet , we can find out the amount of investment that needs to be done today.

= PV(8%,5,0.7,-5)

= 0.61 Million

So, 0.61 Million needs to be deposited today.

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