Page 187 - Solid Waste Analysis and Minimization a Systems Approach

STEP 7: DETERMINE, EVALUATE, AND SELECT WASTE MINIMIZATION ALTERNATIVES 165

TABLE 8.8 NET PRESENT VALUE
ANALYSIS

YEAR CASH FLOW

0 $65,000
1 $20,000

2 $20,000
3 $20,000

4 $20,000
5 $20,000

6 $20,000
7 $20,000

8 $20,000
9 $20,000

10 $20,000
MARR 15.0%

IRR 28.2%
NPV $30,761

Most spreadsheet programs typically have the ability to automatically calculate IRR
and NPV from a series of cash flows. Table 8.8 is an example applying these financial
evaluation concepts. Returning to the baler example discussed previously, recalling an
initial cost of $65,000 and $20,000 in annual savings and assuming a baler life span
of 10 years and an organization minimum attractive rate of return (MARR) of
15 percent. The MARR is the minimum return on a project that a manager is willing
to accept before starting a project, given its risk and the opportunity cost of forgoing
other projects. The MARR is calculated by the management working with the finance
department and typically ranges between 3 to 15 percent for most organizations.
Table 8.8 shows the cash flows, IRR, and NPV.
As shown in the last two rows, the IRR is 28.2 percent and the NPV is nearly $31,000
at an MARR of 15 percent. The fact that the IRR is greater than the 15 percent MARR
and the NPV is positive indicates that the project is a good financial decision.
Waste minimization alternatives should also be evaluated based on sustainability and
the cultural fit within the organization. Sustainability is defined as an organization’s
investment in a system of living, projected to be viable on an ongoing basis that provides
quality of life for all individuals of sentient species and preserves natural ecosystems.
Sustainability in its simplest form describes a characteristic of a process or state that can
be maintained at a certain level indefinitely. The term, in its environmental usage, refers