InterCo Systems and Services is going green. They are looking into a wind turbine to help power their facility. The initial cost of the turbine should reduce utility costs for the next 40 years. You are tasked with investigating this new project and are given the following parameters:
Instructions
a. If the company wants to generate a breakeven NPV on this project, how much should it commit towards the investment?
b. If the company meets its cost savings above but decides to spend $2,000,000, will the earnings be less than 8%, more than 8%, or the same 8% return? Be sure to prove your answer.
c. If the company is willing to spend $2,000,000 on the turbine, how much in after-tax cost savings would the company need to generate to have a NPV of zero?

Question

InterCo Systems and Services is going green. They are looking into a wind turbine to help power their facility. The initial cost of the turbine should reduce utility costs for the next 40 years. You are tasked with investigating this new project and are given the following parameters: 
  Instructions
a. If the company wants to generate a breakeven NPV on this project, how much should it commit towards the investment?
b. If the company meets its cost savings above but decides to spend $2,000,000, will the earnings be less than 8%, more than 8%, or the same 8% return? Be sure to prove your answer.
c. If the company is willing to spend $2,000,000 on the turbine, how much in after-tax cost savings would the company need to generate to have a NPV of zero?

Quizplus · Accepted Answer

The Answer of InterCo Systems and Services is going green. They are looking into a wind turbine to help power their facility. The initial cost of the turbine should reduce utility costs for the next 40 years. You are tasked with investigating this new project and are given the following parameters: 
  Instructions
a. If the company wants to generate a breakeven NPV on this project, how much should it commit towards the investment?
b. If the company meets its cost savings above but decides to spend $2,000,000, will the earnings be less than 8%, more than 8%, or the same 8% return? Be sure to prove your answer.
c. If the company is willing to spend $2,000,000 on the turbine, how much in after-tax cost savings would the company need to generate to have a NPV of zero?

InterCo Systems and Services Is Going Green