Question

Fulton Township is studying a 870-acre site for a new landfill. The new site will save $87,000 in annual operating costs for 10 years, as Fulton currently uses the landfill of a neighboring municipality. Other data are:

Purchase price per acre: $635

Site preparation costs: $127,000

Hurdle rate: 4%

Ignore income taxes.

Year	FV of $1 at 4%				FV of an ordinary annuity at 4%				PV of $1 at 4%				PV of an ordinary annuity at 4%
1		1.040				1.000				0.962				0.962
2		1.082				2.040				0.925				1.886
3		1.125				3.122				0.889				2.775
4		1.170				4.246				0.855				3.630
5		1.217				5.416				0.822				4.452
6		1.265				6.633				0.790				5.242
7		1.316				7.898				0.760				6.002
8		1.369				9.214				0.731				6.733
9		1.423				10.583				0.703				7.435
10		1.480				12.006				0.676				8.111

Required:

A-1. Determine Net present value.

Net present value

A-2. Determine whether the landfill should be acquired.

Yes

No

B. Determine the landfill's approximate internal rate of return, using PV table.

Internal rate of return

% and

%

Answer 1