A COMPANY IS STUDYING TO UPGRADE THEIR EQUIPMENT IN ORDER TO REDUCE COST BY P40,000.00 PER YEAR. COST OF EQUIPMENT IS P300,000.00, WITH SALVAGE VALUE OF P50,000.00 AND 7 YEARS LIFE. MAINTENANCE COST IS P6000.00/YEAR. WHILE THE MACHINE IS NOT IN USE, IT CAN ALSO EARN ANOTHER P10,000.00/YEAR IN RENTAL. IF THE CAPITAL CAN BE INVESTED AT 8% RETURN, IS THE COMPANY JUSTIFIED IN BUYING THE EQUIPMENT?

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
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Chapter1: Making Economics Decisions
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A COMPANY IS STUDYING TO UPGRADE THEIR EQUIPMENT IN ORDER TO REDUCE COST BY
P40,000.00 PER YEAR.
COST OF EQUIPMENT IS P300,000.00, WITH SALVAGE VALUE OF P50,000.00 AND 7 YEARS LIFE.
MAINTENANCE COST IS P6000.00/YEAR.
WHILE THE MACHINE IS NOT IN USE, IT CAN ALSO EARN ANOTHER P10,000.00/YEAR IN
RENTAL.
IF THE CAPITAL CAN BE INVESTED AT 8% RETURN, IS THE COMPANY JUSTIFIED IN BUYING
THE EQUIPMENT?
WHY? USE RATE OF RETURN METHOD WHEN SOLVING
Transcribed Image Text:A COMPANY IS STUDYING TO UPGRADE THEIR EQUIPMENT IN ORDER TO REDUCE COST BY P40,000.00 PER YEAR. COST OF EQUIPMENT IS P300,000.00, WITH SALVAGE VALUE OF P50,000.00 AND 7 YEARS LIFE. MAINTENANCE COST IS P6000.00/YEAR. WHILE THE MACHINE IS NOT IN USE, IT CAN ALSO EARN ANOTHER P10,000.00/YEAR IN RENTAL. IF THE CAPITAL CAN BE INVESTED AT 8% RETURN, IS THE COMPANY JUSTIFIED IN BUYING THE EQUIPMENT? WHY? USE RATE OF RETURN METHOD WHEN SOLVING
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the 50,000 from the depreciation formula, is it the annual profit or is it the salvage value? 

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