The CT Computers Corporation is considering

whether to begin offering customers the option to have their old personal computers

(PCs) recycled when they purchase new systems. The recycling system would require CT

Computers 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 Computers estimates that in the first year of the recycling investment, it could

recycle 100,000 PCs and that this number will grow by 25% per year over the remaining

four-year life of the recycling equipment. CT Computers 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 PCs cost CT

Computers nothing.

b. Calculate the NPV and IRR 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 only 75,000 units are recycled in the first year?

d. Redo your analysis for a scenario in which CT Computers 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