A COMPANY IS CONSIDERING CONSTRUCTING A PLANT TO MANUFACTURE A PROPOSED NEW PRODUCT. THE LAND COSTS P300,000, AND THE BUILDING COSTS P600,000, THE EQUIPMENT COSTS P250,000 AND P100,000 ADDITIONAL WORKING CAPITAL IS REQUIRED. IT IS EXPECTED THAT THE PRODUCT WILL RESULT IN SALES OF P750,000 PER YEAR FOR 10 YEARS, AT WHICH TIME THE LAND CAN BE SOLD FOR P400,000, THE BUILDING FOR P350,000 AND THE EQUIPMENT FOR P50,000. ALL OF THE WORKING CAPITAL WOULD BE RECOVERED AT THE END OF YEAR 10. THE ANNUAL EXPENSES FOR LABOR, MATERIALS, AND ALL OTHER ITEMS ARE ESTIMATED TO TOTAL P475,000. IF THE COMPANY REQUIRESS MARR OF 15% PER YEAR ON PROJECTS OF COMPARABLE RISK, DETERMINE IF IT SHOULD INVEST IN THE NEW PRODUCT LINE. EVALUATE USING ALL METHODS: A. RATE OF RETURN METHOD (RR) B. ANNUAL COST METHOD C. ANNUAL WORTH METHOD
A COMPANY IS CONSIDERING CONSTRUCTING A PLANT TO MANUFACTURE A PROPOSED NEW PRODUCT. THE LAND COSTS P300,000, AND THE BUILDING COSTS P600,000, THE EQUIPMENT COSTS P250,000 AND P100,000 ADDITIONAL WORKING CAPITAL IS REQUIRED. IT IS EXPECTED THAT THE PRODUCT WILL RESULT IN SALES OF P750,000 PER YEAR FOR 10 YEARS, AT WHICH TIME THE LAND CAN BE SOLD FOR P400,000, THE BUILDING FOR P350,000 AND THE EQUIPMENT FOR P50,000. ALL OF THE WORKING CAPITAL WOULD BE RECOVERED AT THE END OF YEAR 10. THE ANNUAL EXPENSES FOR LABOR, MATERIALS, AND ALL OTHER ITEMS ARE ESTIMATED TO TOTAL P475,000. IF THE COMPANY REQUIRESS MARR OF 15% PER YEAR ON PROJECTS OF COMPARABLE RISK, DETERMINE IF IT SHOULD INVEST IN THE NEW PRODUCT LINE. EVALUATE USING ALL METHODS:
A.
B. ANNUAL COST METHOD
C. ANNUAL WORTH METHOD
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