Question

Q1:The MXM is thinking of building a plant. The cost of building the plant is estimated at $1,000,000 and is expected to save the cost of using the third party disposal facility of $220,000 per year. The building is estimated to have a useful life of 10 years, and it will have zero disposal value. The required rate of return is 12%. Compute the net present value for this investment. Would you recommend MXM to build the plant?

Q2:There is a debate in the senior management team of MXM on the proposal of building the plant, where several senior managers oppose the idea. Their main argument is that the proposed location of the plant is too near to a river. They are concerned that the chemical waste from the plant might contaminate the water in the river which is the main source of raw water for 1,292 areas in seven districts with 1.2 million people. Therefore, additional investment might be needed to identify methods to dispose of the waste produced by the plant. What would be your response to this issue? Should MXM build the plant?

Answer 1