Microsoft Ltd is considering investing in a new cloud infrastructure project with the following forecasted...
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Accounting
Microsoft Ltd is considering investing in a new cloud infrastructure project with the following forecasted details:Â Initial amount invested is R800,000 and expected residual value is R70,000.
Year
Cashflows
Discount factor
Year 1
R200,000
0.909
Year 2
R210,000
0.826
Year 3
R220,000
0.751
Year 4
R230,000
0.683
Year 5
R240,000
0.621
Assuming that the cost of capital for the company is 11%. The cash flows are after tax and depreciation is charged at R80,000 per year. Tax rate is 26%.
Required:
Calculate each of the following: 1.1.1. Internal Rate of Return (IRR) (10) 1.1.2. Payback period (5)
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