P12-29 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 cubic 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 500,000 liters a day. However, management anticipates that only about 200,000 liters of liquid waste would he processed in a normal workday. The company operates 300 days per year. The initial investment in the system would be S450.0(X). and annual operating cost, are predicted to be S150.000. The system has a predicted useful life of ten years and a salvage value of $50,000 Required a. Determine the project's net present value at a discount rate of 14 percent. b. Determine the project's approximate internal rate of return. (Refer to Appendix 12B if you use the table approach.) t. Determine the project' s payback period