Question
4. For ABC Casino & Hotel, replacing the existing water conditioning system with a new one needs a net initial outlay of $40,000. Due to
4. For ABC Casino & Hotel, replacing the existing water conditioning system with a new one needs a net initial outlay of $40,000. Due to energy saving, the new system will result in incremental $15,000 in cash flow each year for the next three years. The system has 3 years of useful life. Its salvage value will be zero at the end. The casino-hotel uses a discount rate of 8%.
Requirements:
a. What is the accounting rate of return (ARR) of the project?
b. Whats the payback period (PP) of the project?
c. Calculate the net present value (NPV) of the project.
d. If the discount rate is lowered to5%, should the casino-hotel take on this project? Why?
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