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    ankit
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    The city implemented a green bin program with an initial total investment of $6.7 million which included the cost of bins, trucks, and truck retrofitting. It was assumed that the annual landfill savings would increase by $200,000 each year over 15 years. The net present value of the projected savings was calculated to be $6.19 million using a 12% discount rate. However, the net present value of the program was negative $545,979 since the initial investment exceeded the discounted future savings.

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    Net present value

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    The city implemented a green bin program with an initial total investment of $6.7 million which included the cost of bins, trucks, and truck retrofitting. It was assumed that the annual landfill savings would increase by $200,000 each year over 15 years. The net present value of the projected savings was calculated to be $6.19 million using a 12% discount rate. However, the net present value of the program was negative $545,979 since the initial investment exceeded the discounted future savings.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    7 views1 page

    Net Present Value

    Uploaded by

    ankit
    The city implemented a green bin program with an initial total investment of $6.7 million which included the cost of bins, trucks, and truck retrofitting. It was assumed that the annual landfill savings would increase by $200,000 each year over 15 years. The net present value of the projected savings was calculated to be $6.19 million using a 12% discount rate. However, the net present value of the program was negative $545,979 since the initial investment exceeded the discounted future savings.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 1

    Green Bin Program

    Bins (110,000 × 30) $3,300,000


    Purchase of 9 trucks $1,899,000
    Trucks Retrofitted $1,540,000
    Total Initial Investment $6,739,000

    Assumption- We have assumed that the landfill savings have increased by $200,000
    every year.

    Calculating Present Value of all the years

    PV=FV×1/(1+ r)n

    r = rate of return or discount rate is 12%

    t= 15 years

    Year 1 = 0/(1.12)1 = 0/1.12 = 0


    Year 2 = 100,000/(1.12)2 = 100,000/1.254 = 79744.8
    Year 3 = 300,000/(1.12)3 = 300,000/1.405 = 213523.13
    Year 4 = 500,000/(1.12)4 = 500,000/1.573 = 317863.95
    Year 5 = 700,000/(1.12)5 = 700,000/1.762 = 397275.8
    Year 6 = 900,000/(1.12)6 = 900,000/1.974 = 455927.05
    Year 7 = 1,100,000/(1.12)7 = 1,100,000/2.211 = 497512.43
    Year 8 = 1,300,000/(1.12)8 = 1,300,000/2.476 = 525040.39
    Year 9 = 1,500,000/(1.12)9 = 1,500,000/2.773 = 540930.4
    Year 10 = 1,700,000/(1.12)10 = 1,700,000/3.106 = 547327.75
    Year 11 = 1,900,000/(1.12)11 = 1,900,000/3.478 = 546290.97
    Year 12 = 2,100,000/(1.12)12 = 2,100,000/3.89 = 539845.76
    Year 13 = 2.300,000/(1.12)13 = 2,300,000/4.363 = 527160.2
    Year 14 = 2,500,000/(1.12)14 = 2,500,000/4.89 = 511247.4
    Year 15 = 2,700,000/(1.12)15 = 2,700,000/5.473 = 493330.89
    Total 6193020.8

    NPV= Cash inflows –Cash outflows

    = 6193020.8 - 6,739,000

    = -545979.17

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