Cost Reduction Proposal:

IRR, NPV$,$ and Payback Period

JB Chemical currently discharges liquid waste into Calgary's municipal sewer system. However, the Calgary municipal government has informed JB that a surcharge of $$4$ 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 $200,000$ 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 $$360,000,$ and annual operating costs are predicted to be $$150,000.$ The system has a predicted useful life of twelve years and a salvage value of $$50,000.$

$($a$)$ Determine the project's net present value at a discount rate of $22$ percent. $($Round to the nearest whole number.$)$

$ Answer

$($b$)$ Determine the project's approximate internal rate of return. $($Round your answer to the nearest whole percentage.$)$

Answer

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