Harrison Township Is Studying a 700-Acre Site for a New

Harrison Township is studying a 700-acre site for a new landfill.The new site will save $70,000 in annual operating costs for 10 years,as Harrison currently uses the landfill of a neighboring municipality.Other data are:
Purchase price per acre: $550
Site preparation costs: $110,000
Hurdle rate: 6%
Ignore income taxes.
Required:
A.

Yes,the landfill should be acquired because it has a positive net present value.
A.Use the net-present-value method and determine whether the landfill should be acquired.
B.Determine the landfill's approximate internal rate of return.
B.Let X = present value factor
$70,000X = ($385,000 + $110,000)
X = 7.071
A review of annuity factors for 10 years finds an internal rate of return that falls between 6% (7.360)and 8% (6.710).

Correct Answer:

Verified

A.
Yes,the landfill should be acquired...

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