External rate of return from switching to reclaimed water

Assignment Help Financial Management

Reference no: EM131048188

Suppose that Dr. Stone brewery could use recliamed municipal water waste water to make beer instead of the municipal water that is currently being used. this will help conserve limited fresh water resources and reduce the brewery's annual water bill. To use recliamed waste water the brewery will need purchase new water treatment equipment for $125,000. Water treatment operating cost (filters and chemicals) would be $5,000 annually. Dr. Stone estimates that the brewery would save $10,000 in the first year from reduced municipal water bills, and these savings will grow by 3% per year based on the expected increase in municipal water rates over time. The water treatment equipment has a useful life of 25 years and a savage value of $10,000.

a) What is the internal rate of return from switching to recliamed water? Complete by hand show all work.

b) If the Brewery's MARR is 6%, is this a good investment?

c) What is the external rate of return from switching to reclaimed water? Do by hand show all work.

d) What are at least two limitations of using the IRR method and how does the ERR metod aviod these limitations?

Reference no: EM131048188

Questions Cloud

About the weighted average cost of capital : ABC Inc. borrows money at 8%, sells bonds at 7%, and the purchasers of common stock require 14% rate of return. If the company has borrowed $40 million, sold $60 million in bonds, and sold $100 million worth of common stocks, what is the Weighted Ave..

Dupont equation is often used to uncover strengths : DuPont equation is often used to uncover strengths and weaknesses in the company's financial structure. Suppose that profit margin is 3% and total asset turnover is 5 times per year. Find equity multiplier if the Return on Equity is 20%. Show work.

About the markets opinion on the companys assets : A public company has a book value of $128 million. They have 20 million share outstanding with a market price of $4 per share. What inference can be drawn about the market's opinion on the company's assets?

Explain the challenges that ing direct spain faced : Explain how far ING Direct Spain could go in terms of expanding its product portfolio without adding too much internal complexity? Explain the challenges that ING Direct Spain faced in dealing with complexity?

External rate of return from switching to reclaimed water : Suppose that Dr. Stone brewery could use recliamed municipal water waste water to make beer instead of the municipal water that is currently being used. this will help conserve limited fresh water resources and reduce the brewery's annual water bill...

Identify the relevant act and sections or regulations : You have received a complaint about a spray painting business pouring paint down a Council drain. The inspection of the drain revealed a paint residue in the drain. Identify the relevant Act and Sections or Regulations to be utilised in resolving t..

What will be the profit for investor-conduct local arbitrage : Bank A quotes a bid rate of $.300 and an ask rate of $.305 for the Malaysian ringgit (MYR). Bank B quotes a bid rate of $.306 and an ask rate of $.310 for the ringgit. What will be the profit for an investor who has $500,000 available to conduct loca..

Calculate operating break-even point in both units-dollars : Meyerson's Bakery is considering the addition of a new line of pies to its product offerings. It is expected that each pie will sell for $15 and the variable cost per pie will be $9. Total Fixed operating costs are expected to be $20,000. Create an i..

What stock price would you consider appropriate : The Perfect Rose Co. has earnings of $1.55 per share. The benchmark PE for the company is 11. What stock price would you consider appropriate? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock pric..

User Account

All Pages