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sscourse.com/platform/mod/quiz/attempt.php?attempt-1812391 Menu QUESTION 1 Partialy correct 667 points out of 20.00P Flag question Cost Reduction Proposal: IRR, NPV, and Payback Period PA Chemical currently discharges liquid waste into Pittsburgh's municipal sewer system. However, t Pittsburgh municipal government has informed PA that a surcharge of $5 per thousand cubic liters will soon be imposed for the discharge of this waste. This has prompted management to evaluate the desirability of treating its own liquid waste. A proposed system consists of three elements. The first is a retention basin, which would permit unusual discharges to be held and treated before entering the downstream system. The second is a continuous self-cleaning rotary filter required where solids are removed. The third is an automated neutralization process required where materials are added to control the alkalinity-acidity range. The system is designed to process 600.000 liters a day. However, management anticipates that only about 250.000 liters of liquid waste would be processed in a normal workday. The company operates 300 days per year. The initial investment in the system would be $900,000, and annual operating costs are predicted to be $162.000. The system has a predicted useful life of ten years and a salvage value of $70,000. (a) Determine the project's net present value at a discount rate of 16 percent. (Round to the nearest whole number.) $ 145.345 (b) Determine the project's approximate internal rate of return. 20.14 (c) Determine the project's payback period. (Round answer to two decimal places.) 4.23 V years Check

Explanation / Answer

Period PV 16% Actual Cash Flow PV of Cash Flow Initial investment 0 1 -900000 -900000 Inflow in the form of saving 600*300*5 1-10 4.833227 900000 4349905 Operating Cost 1-10 4.833227 -162000 -782983 Salvage Value 10 0.226684 70000 15868 Net Present Value 2682790 Period Cash Flow Initial investment -900000 Saving-Operating Cost 738000 Saving-Operating Cost 738000 Saving-Operating Cost 738000 Saving-Operating Cost 738000 Saving-Operating Cost 738000 Saving-Operating Cost 738000 Saving-Operating Cost 738000 Saving-Operating Cost 738000 Saving-Operating Cost 738000 Saving-Operating Cost+Salvage Value 808000 =IRR(C9:C19) IRR 81.81%

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