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Cost Reduction Proposal: IRR, NPV, and Payback Period PA Chemical currently discharges liquid waste into Pittsburgh's municipal sewer system. However, the Pittsburgh municipal government has informed PA that a surcharge of $6 per thousand 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 700,000 liters a day. However, management anticipates that only about 350,000 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 $1,500,000, and annual operating costs are predicted to be $280,000. The system has a predicted useful life of 10 years and a salvage value of $100,000. (a) Determine the project's net present value at a discount rate of 14 percent. (Round to the nearest whole number.) $ 352,605 (b) Determine the project's approximate internal rate of return. Round answer to the nearest percentage (ex: 15%) 18 % (c) Determine the project's payback period. Note: Round your answers to two decimal places. For example, enter 8.84 for 8.844 and 8.85 for 8.845. 4.29 years

Cost Reduction Proposal: IRR, NPV, and Payback Period PA Chemical currently discharges liquid waste into Pittsburgh's municipal sewer system. However, the Pittsburgh municipal government has informed PA that a surcharge of $6 per thousand 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 700,000 liters a day. However, management anticipates that only about 350,000 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 $1,500,000, and annual operating costs are predicted to be $280,000. The system has a predicted useful life of 10 years and a salvage value of $100,000. (a) Determine the project's net present value at a discount rate of 14 percent. (Round to the nearest whole number.) $ 352,605 (b) Determine the project's approximate internal rate of return. Round answer to the nearest percentage (ex: 15%) 18 % (c) Determine the project's payback period. Note: Round your answers to two decimal places. For example, enter 8.84 for 8.844 and 8.85 for 8.845. 4.29 years

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Cost Reduction Proposal: IRR, NPV, and Payback Period PA Chemical currently discharges liquid waste into Pittsburgh's municipal sewer system. However, the Pittsburgh municipal government has informed PA that a surcharge of $6 per thousand 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 700,000 liters a day. However, management anticipates that only about 350,000 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 $1,500,000, and annual operating costs are predicted to be $280,000. The system has a predicted useful life of 10 years and a salvage value of $100,000. (a) Determine the project's net present value at a discount rate of 14 percent. (Round to the nearest whole number.) $ 352,605 (b) Determine the project's approximate internal rate of return. Round answer to the nearest percentage (ex: 15%) 18 % (c) Determine the project's payback period. Note: Round your answers to two decimal places. For example, enter 8.84 for 8.844 and 8.85 for 8.845. 4.29 years
Transcribed Image Text:Cost Reduction Proposal: IRR, NPV, and Payback Period PA Chemical currently discharges liquid waste into Pittsburgh's municipal sewer system. However, the Pittsburgh municipal government has informed PA that a surcharge of $6 per thousand 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 700,000 liters a day. However, management anticipates that only about 350,000 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 $1,500,000, and annual operating costs are predicted to be $280,000. The system has a predicted useful life of 10 years and a salvage value of $100,000. (a) Determine the project's net present value at a discount rate of 14 percent. (Round to the nearest whole number.) $ 352,605 (b) Determine the project's approximate internal rate of return. Round answer to the nearest percentage (ex: 15%) 18 % (c) Determine the project's payback period. Note: Round your answers to two decimal places. For example, enter 8.84 for 8.844 and 8.85 for 8.845. 4.29 years
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