14. The GJE company has a contract with a hauler to transport its naphtha requirements of 3,600,000 liters per year from a refinery in Batangas to its site in Paco at a cost of 30 centavo per liter. It is proposed that the company buys a tanker with a capacity of 18,000 liters to service its requirements at a first cost of Php800,000, life is 6 years and a salvage value of Php 20,000. Other expenses are as follows: Diesel fuel at Php 5 per liter and tanker consumes 120 liters per round trip Lubricating oil and servicing is Php 800 per month Labor including overtime and other fringe benefits for one driver and on helper is Php 7,000 per month Annual taxes and insurance is 5% of the first cost General maintenance per year is Php 20,000 Trips cost Php 21,000 per set and will be renewed every 150 round trips What should the GJE company do assuming a 15% interest rate on investment in the analysis?

14. The GJE company has a contract with a hauler to transport its naphtha requirements of 3,600,000 liters per year from a refinery in Batangas to its site in Paco at a cost of 30 centavo per liter. It is proposed that the company buys a tanker with a capacity of 18,000 liters to service its requirements at a first cost of Php800,000, life is 6 years and a salvage value of Php 20,000. Other expenses are as follows: Diesel fuel at Php 5 per liter and tanker consumes 120 liters per round trip Lubricating oil and servicing is Php 800 per month Labor including overtime and other fringe benefits for one driver and on helper is Php 7,000 per month Annual taxes and insurance is 5% of the first cost General maintenance per year is Php 20,000 Trips cost Php 21,000 per set and will be renewed every 150 round trips What should the GJE company do assuming a 15% interest rate on investment in the analysis?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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