Q1-3) Suppose there is initial investment (cost)?, 10, of $35,000 required. What is the maximum allowed annual investment, Iy, for this project to have positive NPV? Mid-term Project (Due date: October 12, Monday) Total Points: 20 points Benefit of Sustainability: Cost saving approach 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 waste by 20% (We here refer that maximum conversion rate. Ymar. is 20%) Considerations for cost analysis 1. 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 measured based on a 35-gal container. 22.5 containers are required for tonnage. It costs $6.66 per a recycled container with delivery costs of $59 per tonnage. The 35-yard compactor can be shared for recycling and trash. (Assume that recycling and trash & compost treatment process is implemented once a month.) Month July August Sept Oct Nov Dec Jan Feb Table: Marriott Marquis' weights for recycle, trash, and compost Recycle Trash Compost 95.52 86.5 2.89 84.93 9.33 110.57 17.47 74.41 5.38 59.93 17.82 70.69 9.85 85.21 19.83 96.82 6.35 11.89 87.33 19.31 26.11 91.61 6.85 17.53 85.93 16.05 138.1 1029.45 48.56 Total 95.52 86.5 87.82 119.9 91.88 65.31 88.51 95.06 123 118.53 124.57 119.51 1216.11 March April May June Total 1 2. 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 conversion rate, y (Gamma), is increasing linearly each year over 10 years. That is, y = 0.1Ymax in the first year, 0.2Ymar in the second year, - Ymar in the last (10) year. The expected cash flow (CF) is C, CYmax * 0.1) in the first year, C * (Ymax * 0.2) in the second year, C. (Ymar * 1) in the last (10) year. 3. 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% 4. 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. 5. 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 formula can be written as ++ (14r) i. NPV = - + + ii. IRR finds r such as - C+E - *= 0 where - Co is initial cost investment), C is cash flow, ris discount rate, and Tis time. 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. NPV and IRR method can give a conflicting ranking of projects when IRR method is compared to NPV 2 for mutually exclusive projects. Also multiple IRR problem can be an issue when cash flows during the project lifetime are negative. Q1-3) Suppose there is initial investment (cost)?, 10, of $35,000 required. What is the maximum allowed annual investment, Iy, for this project to have positive NPV? Mid-term Project (Due date: October 12, Monday) Total Points: 20 points Benefit of Sustainability: Cost saving approach 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 waste by 20% (We here refer that maximum conversion rate. Ymar. is 20%) Considerations for cost analysis 1. 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 measured based on a 35-gal container. 22.5 containers are required for tonnage. It costs $6.66 per a recycled container with delivery costs of $59 per tonnage. The 35-yard compactor can be shared for recycling and trash. (Assume that recycling and trash & compost treatment process is implemented once a month.) Month July August Sept Oct Nov Dec Jan Feb Table: Marriott Marquis' weights for recycle, trash, and compost Recycle Trash Compost 95.52 86.5 2.89 84.93 9.33 110.57 17.47 74.41 5.38 59.93 17.82 70.69 9.85 85.21 19.83 96.82 6.35 11.89 87.33 19.31 26.11 91.61 6.85 17.53 85.93 16.05 138.1 1029.45 48.56 Total 95.52 86.5 87.82 119.9 91.88 65.31 88.51 95.06 123 118.53 124.57 119.51 1216.11 March April May June Total 1 2. 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 conversion rate, y (Gamma), is increasing linearly each year over 10 years. That is, y = 0.1Ymax in the first year, 0.2Ymar in the second year, - Ymar in the last (10) year. The expected cash flow (CF) is C, CYmax * 0.1) in the first year, C * (Ymax * 0.2) in the second year, C. (Ymar * 1) in the last (10) year. 3. 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% 4. 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. 5. 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 formula can be written as ++ (14r) i. NPV = - + + ii. IRR finds r such as - C+E - *= 0 where - Co is initial cost investment), C is cash flow, ris discount rate, and Tis time. 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. NPV and IRR method can give a conflicting ranking of projects when IRR method is compared to NPV 2 for mutually exclusive projects. Also multiple IRR problem can be an issue when cash flows during the project lifetime are negative