The ABC Computers Corporation is considering whether to begin offering customers the option to have...
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The ABC Computers Corporation is considering whether to begin offering customers the option to have their old personal computers (PCs) recycled when they purchase new systems. The recycling system would require ABC Computers to invest $600,000 in the grinders and magnets used in the recycling process. The company estimates that for each system it recycles, it would generate $1.50 in incremental revenues from the sale of scrap metal and plastics. (hints! Revenue per unit: 1.50) The machinery has a five-year useful life and will be depreciated using straight-line depreciation toward a zero salvage value. ABC Computers estimates that in the first year of the recycling investment, it could recycle 100,000 PCs and that this number will grow by 20% per year over the remaining four-year life of the recycling equipment. ABC Computers uses a 10% discount rate to analyze capital expenditures and pays taxes equal to 30%.
a. What are the project cash flows? You can assume that the recycled PCs cost ABC Computers nothing.
b. Calculate the NPV and the IRR for the recycling investment opportunity.
Please explain every step
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