The world\'s largest carpet maker has just completed a feasibility study of what
ID: 1189992 • Letter: T
Question
The world's largest carpet maker has just completed a feasibility study of what to do with the 16000 tons of overruns, rejects, and remnants it produces every year. The company's CEO launched the fesibility study by asking, why pay someone to dig coal out the ground and then pay someone else to put our waste into a landfill? Why not just burn our waste? The company is proposing to bulid a $9million power plant to burn its waste as fuel, thereby saving $2.4million a year in coal purchases. Company engineers have determined that the waste-burning plant will be enviormentally sound, and after its sic-year study period the plant can be sold to a local eletric utiliufor $4.6million
A) what is the IRR of this proposed power plant?
Explanation / Answer
IRR is that rate of return where the Net present value becomes Zero.
IRR = 22%
Year Cashflow Rate of Return Present Value NPV 0 -9 22% -9 0.00 1 2.4 22% 1.97 2 2.4 22% 1.61 3 2.4 22% 1.32 4 2.4 22% 1.08 5 2.4 22% 0.89 6 7 22% 2.12Related Questions
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