Dispose of toxic elements from recycled computers

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Reference no: EM13197272

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: EM13197272

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