Question

Carlisle Company has been cited and must invest in equipment to reduce stack emissions or face EPA fines of $18,500 per year. An emission reduction filter will cost $100,000 and will have an expected life of 5 years. Carlisle’s MARR is 5 %/year.

1.What is the present worth of this investment?

2.Is the filter economically justified?

3.Select noneconomic factor that might influence this decision:

GDP growth rate

inflation

environmental policy

population growth

Answer 1

ANSWER:

1) Pw = cost of reduction filter + epa fines saved per year(p/a,i,n)

pw = -100,000 + 18,500(p/a,5%,5)

pw = -100,000 + 18,500 * 4.329

pw = -100,000 + 80,086.5

pw = -19,913.5

so the present worth is -$19,913.5

2) The filter is not economically justified as the present worth is negative.

3) Environmental policy is the non economic factor that will influence in buying the reduction filter as every company wants to be playing along with the government and if the government has made an environmental policy then the company will abide amd also the public image of the company gets ruined if it doesn't abide by the rules.