Question
Hello I need help getting started with a finance question. Marriott's environmental commitments are aiming to further reduce energy and water consumption by 20%. to
Hello
I need help getting started with a finance question.
Marriott's environmental commitments are aiming to further reduce energy and water consumption by 20%. to meet the goals, Marriott Marquis initiated a long-term project to reduce waster by 20%. (We here refer that maximum conversion rate, Ymax is 20%)
Considerations for cost Analysis
A. Annual cost of waste for Marriott Marquis (per hotel): The following table is to illustrate Marriott Marquis's average monthly weights for recycling, trash, compost for recent years. All weights are marked in Tons. Recycling and trash amounts are measured in 35-yard compactors. It costs $150 to haul a 35-yard compactor plus $59 per tonnage. Compost amount is measure based on a 35-gal container. 22.5 containers are required for tonnage. It cost $6.66 per recycled container with delivery cost of $59 per tonnage. The 35-yard compactor can be shared fro recycling and trash. (Assume that recycling and trash & compost treatment process is implemented once a month.)
Table: Marriott Marquis' weights for recycle, trash, compost
Month Recycle Trash Compost Total
July - 95.52 - 95.52
August - 86.50 - 86.50
Sept 2.89 84.93 - 87.82
Oct 9.33 110.57 - 119.90
Nov 17.47 74.41 - 91.88
Dec 5.38 59.93 - 65.31
Jan 17.82 70.69 - 88.51
Feb 9.85 85.21 - 95.06
March 19.83 96.82 6.35 123
April 11.89 87.33 19.31 118.53
May 26.11 91.61 6.85 124.57
June 17.53 85.93 16.05 119.51
Total 138.10 1029.45 48.56 1216.11
.
B. Expected Cash Flows: Let's denote total annual cost savings (recycling, trash, and compost) for Marriott Marquis as Cs, discount rate as r, and maximum conversion rate is ymax (Gamma Max)
Suppose annual annual conversion rate, y (Gamma), is increasing linearly each year over 10 years. That is, y = .1ymax in the first year, .2ymax in the second year,.....ymax in the last (10th) year.
the expected cash flow (CF) is Cs x (ymax x .01) in the first year, Cs x (ymax x .2) in the second year,....Cs x (ymax x 1) in the last (10th) year.
C. Discount rate: according to the effective yield of the Bank of America Merrill Lynch US Corporate 7-10 Year Index that compiles all securities with a remaining term to maturity of greater than or equal to 7 years and less than 10 years, 10-year corporate bond yield is 3.85%
D. Typical project Length: Many of Marriott's hotels have a form of committees or independent CSR work groups. Each work group has launched and is currently working on relevant projects as part of enhancing business sustainability with typical project lasting about 10 years.
E. Net Present Value (NPV) and Internal Rate of Return (IRR): NPV determine the sum of the present values of cash inflow and outflows over the period of project. NPV calculate an estimate of the profitability of a project or investment. The NPV method is a direct measure of the dollar contribution to the investors, while the IRR method provides the return on the original money invested.
Questions:
- What is the annual cost of waste for Marriott Marquis in recent years?
- suppose there is no initial investment (cost), (without any running cost). what is the maximum allowed annual investment, for this project to have a postive NPV?
- Suppose there is initial investment (cost0) of $35,000 required. what is the maximum allowed annual investment for this project to have a positive NPV?
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