Case Scenario: Ojibwas County Jail currently has its laundry done by a local dry cleaner at an annual cost of $46,000. It is considering a purchase of washers, dryers, and presses at a total installed cost of $52,000 so that inmates can do the laundry. The county expects savings of $15,000 per year, and it expects the machines to last five years. The desired rate of return is 10%
1) Compute the NPV of the investment in Laundry facilities.
2) Suppose the machines last only four years. Compute the NPV.
3) Suppose the annual savings are only $12,00. Compute the NPV.
Suppose the annual savings are $18,000 compute the NPV.
4) Compute the most optimistic estimate of NPV, combining the best outcomes
5) Accept the expected life estimate of five years. What is the minimum annual savings that would justify the investment in the laundry facilities?