Question

Jefferson County’s Board of Representatives is considering the purchase of a site for a new sanitary landfill. The purchase price for the site is $250,000 and preparatory work will cost $44,400. The landfill would be usable for 10 years. The board hired a consultant, who estimated that the new landfill would cost the county $40,000 per year less to operate than the county’s current landfill. The current landfill also will last 10 more years. For a landfill project, Jefferson County can borrow money from the federal government at a subsidized rate. The county’s hurdle rate is only 4 percent for this project.

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

Required:

a.	Compute the net present value of the new landfill.
	Net present value =?

Answer 1

Solution a:

Computation of NPV - Jefferson County
Particulars	Period	Amount	PV factor at 4%	Present Value
Cash outflows:
Purchase price	0	$250,000.00	1	$250,000
Prepratory work	0	$44,400.00	1	$44,400
Present Value of Cash outflows (A)				$294,400
Cash Inflows
Savings in annual operating costs	1-10	$40,000.00	8.111	$324,440
Present Value of Cash Inflows (B)				$324,440
Net Present Value (NPV) (B-A)				$30,040