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Fulton Township is studying a 870-acre site for a new landfill. The new site will save $87,000 in annual operating costs for 10 years, as
Fulton Township is studying a 870-acre site for a new landfill. The new site will save $87,000 in annual operating costs for 10 years, as Fulton currently uses the landfill of a neighboring municipality. Other data are:
Purchase price per acre: $635
Site preparation costs: $127,000
Hurdle rate: 4%
Ignore income taxes.
Year | FV of $1 at 4% | FV of an ordinary annuity at 4% | PV of $1 at 4% | PV of an ordinary annuity at 4% | |||||||||||
1 | 1.040 | 1.000 | 0.962 | 0.962 | |||||||||||
2 | 1.082 | 2.040 | 0.925 | 1.886 | |||||||||||
3 | 1.125 | 3.122 | 0.889 | 2.775 | |||||||||||
4 | 1.170 | 4.246 | 0.855 | 3.630 | |||||||||||
5 | 1.217 | 5.416 | 0.822 | 4.452 | |||||||||||
6 | 1.265 | 6.633 | 0.790 | 5.242 | |||||||||||
7 | 1.316 | 7.898 | 0.760 | 6.002 | |||||||||||
8 | 1.369 | 9.214 | 0.731 | 6.733 | |||||||||||
9 | 1.423 | 10.583 | 0.703 | 7.435 | |||||||||||
10 | 1.480 | 12.006 | 0.676 | 8.111 | |||||||||||
Required:
A-1. Determine Net present value.
|
A-2. Determine whether the landfill should be acquired.
Yes
No
B. Determine the landfill's approximate internal rate of return, using PV table.
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