PROBLEM V Dyno-max is considering buying a new water treatment system. The inves

Question

PROBLEM V Dyno-max is considering buying a new water treatment system. The investment passed the initial screening tests (payback and accounting rate of return) so the company now wants to analyze the proposal using the discounted cash flow methods. Recall that the water treatment system costs $48,000, has a five year life, and has no residual value. The estimated net cash inflows from environment cleanup savings are $13,000 per year over its life. the company's required rate of return is 16%. Requirements Compute the water treatment system's NPV Find the water treatment system's IRR (exact percentage is not required) 1. 2.

Explanation / Answer

1 Net present value n= 5 years I = 16% Annuity table Annual cash inflow 13000 3.12717 40653 Total cash inflow 40653 Net investment -48000 Net present value -7347 2 Year 0 -48000 Year 1 13000 Year 2 13000 Year 3 13000 Year 4 13000 Year 5 13000 =irr(sum) 11%

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