Question

Carlisle Company has been cited and must invest in equipment to reduce stack emissions or face EPA fines of $14,500 per year. An emission reduction filter will cost $75,000 and will have an expected life of 5 years. Carlisle's MARR is 5 %/year. Click here to access the TVM Factor Table Calculator What is the present worth of this investment? $ Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is +5. What is the decision rule for judging the attractiveness of investments based on present worth? Is the filter economically justified? Select noneconomic factor that might influence this decision: inflation O GDP growth rate population growth O environmental policy

Answer 1

(1) PW ($) = - 75,000 + 14,500 x P/A(5%, 5) = - 75,000 + 14,500 x 4.3295 = - 75,000 + 62,777.75 = - 12,222

(2) Decision rule: Accept project if PW > 0 and Reject project if PW < 0

(3) Since PW < 0, it is not economically justified.

(4) Environmental Policy may influence this decision.