Measuring and managing value

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Reference no: EM13938897

MBA Level Course - "Measuring and Managing Value"

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 five-year useful life and will be depreciated using straight-line depreciation toward a zero salvage value. CT estimates that in the first year of the recycling investment, it could recycle  100,000 PCs and this number will grow by 25% per year over the remaning four-year life of the recycling equipment. CT uses a 15% discount rate to analyze capital expenditures and pays taxes equal to 30%.

A. What are the project cash flows? You can assume that the recycled PC's cost CT nothing.

B. Calculate the NPV (Net Present Value) and IRR (Internal Rate of Return) for the recycling investment opportunity. Is the investment a good one based on these cash flow estimates?

C. Is the investment still a good one if Year 1 units recycled are only 75,000?

D. 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: EM13938897

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