Ct computers inc is considering whether to begin offering

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CT Computers, Inc. is considering whether to begin offering customers the option to have their old personal computers recycled when they purchase new systems. The recycling system would require CT to invest $600,000 in the grinders and magnets used in the recycling process. The company estimates that for each system it recycles, it would generate $1.50 in incremental revenues from the sale of scrap metal and plastics. The machinery has a 5 year useful life and will be depreciated using straight line depreciation toward a zero salvage value. CT estimates that in the 1st year of the recycling investment, it could recycle 100,000 PCs and that this number will grow by 25% per year over the remaining 4 year life of the recycling equipment. CT uses a 15% discount rate to analyze capital expenditures and pays taxes equal to 30%. What are the project cash flows? You can assume that the recycled PCs cost CT nothing. Calculate the NPV and IRR for the recycling investment opportunity. Is the investment a good one based on these cash flow estimates? Is the investment sill a good one if the Year 1 units recycled are only 75,000? Redo your analysis for a scenario in which CT incurs a cost of $0.20 per unit to dispose of the toxic elements from the recycled computers. What is your recommendation under these circumstances?

Reference no: EM13380780

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