Waikato City Council (WCC) is considering the purchase of a site for a new landfill. The purchase
Question:
Waikato City Council (WCC) is considering the purchase of a site for a new landfill. The purchase price for the site is $234000 and preparatory work will cost $88080. The landfill would be useable for 10 years. WCC hired a consultant, who estimated that the new landfill would cost $48000 per year less to operate than the current landfill. The current landfill will also last 10 more years. For a landfill project, WCC can borrow money from the government at a subsidized rate. WCC's required rate of return is only 6 per cent for this project. It does not pay any income taxes.
Required:
Calculate the net present value of the new landfill. Should WCC approve the project?
Net Present ValueWhat is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
Step by Step Answer:
Management Accounting
ISBN: 9781760421144
7th Edition
Authors: Kim Langfield Smith, Helen Thorne, David Alan Smith, Ronald W. Hilton