Question

Vollie Company, is a packaging company and implementing waste management. The company making boxes from timber. Legally, the company can damp the scrap of the timber to the Resource Recovery Centers. Milena, the CEO of the company has high awareness of environment safety. She is considering recycling the timber waste. Milena is thinking of buying a machine, which process the scrap timber to paper. The paper can be sold as an additional product line. This investment requires $ 4 500 000. It is estimated that this machine will last eight years, and it is estimated at the end of eight year the machine can be sold for 300,000. The expected annual incremental income of selling papers as follow:

YEAR INCOME

1: $3 200 000

2 :3 500 000

3 :3 900 000

4 :4 100 000

5 :4 900 000

6 :4 500 000

7 :4 200 000

8 :4 100 000

Vollie has a cost of capital equal to 12%. The company applies a straight-line depreciation method.

1. Compute the payback period (1 mark)

2. Calculate the NPV of the proposed project

3. Based on payback and NPV, provide your opinion, should accept or reject the project.  Justify your answer   (1 mark).

4. Explain the impacts of your decision in (3) to the business sustainability/environmental performance

Answer 1