Question: A plasma arc furnace has an internal combustion temperature of 7,000?C and is being considered for the incineration of medical wastes at a local hospital. The initial investment is $300,000 and annual revenues are expected to be $175,000 over the six-year life of the furnace. Annual expenses will be $100,000 at the end of year one and will increase by $5,000 each year thereafter. The resale value of the furnace after six years is $20,000.
a. What is the simple payback period of the furnace?
b. What is the internal rate of return on the furnace?