A company bought a generating set (or genset) years ago at P5M and is now fully depreciated. It plans to fix it at a cost of P2M so that it would still have 4-year life remaining and be annually operated at a cost of P1M and be sold by the end of its life at P400,000. Simultaneously, it will buy a medium-sized genset at a cost of P2.5M to be operated at P0.25M annually, and a salvage value of P0.35M at the end of 7 years. Leasing is the 2nd option having an annual payment of P1,936,698 and initial payment of P2,967,511, lasting for 6 years. What is the Annual Equivalent Cost of the 2nd Option when interest is 20% cpd.-monthly?

A company bought a generating set (or genset) years ago at P5M and is now fully depreciated. It plans to fix it at a cost of P2M so that it would still have 4-year life remaining and be annually operated at a cost of P1M and be sold by the end of its life at P400,000. Simultaneously, it will buy a medium-sized genset at a cost of P2.5M to be operated at P0.25M annually, and a salvage value of P0.35M at the end of 7 years. Leasing is the 2nd option having an annual payment of P1,936,698 and initial payment of P2,967,511, lasting for 6 years. What is the Annual Equivalent Cost of the 2nd Option when interest is 20% cpd.-monthly?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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