Case study

Wazobia Ventures Ltd is seeking your advice on whether to invest N5,000,000 on a waste recycling project that will yield the following results:

• N300,000 in year 1
• N1,500,000 in year 2
• N2,000,000 in year 3
• N2,000,000 in year 4
• N800,000 in year 5

Wazobia's cost of capital is 9%. Management expects to recover the initial investment within 4 years.

You are to perform the following tasks:

1. Calculate the NPV, IRR, PI, and PBP of the project.
2. For each of these indicators, state whether the project is viable and advise management.
3. Would your answer be different if the cost of capital was 10%?

Let's look at the solution in the following section.

Solution

In accordance with good practice, we must first make some assumptions and put them together in an assumption table:

1. First, build an assumption table.

Figure 13.1 – Assumptions table

2. Prepare a layout for the calculations...