A recapping plant is planning to acquire a new Diesel generating set to replace its present unit which they run during brownouts. The new set would cost P135, 000 with a five (5) year life, and no estimated salvage value. Variable cost would be P150, 000 a year. The present generating set has a book value of P75, 000 and a remaining life of 5 years. Its disposal value now is P7, 500, but it would be zero after 5 years. Variable operating cost would be P187, 500 a year. Money is worth 10%. Which is profitable, to buy the new generator set or retain the present set? Support your answer by showing your computation.

A recapping plant is planning to acquire a new Diesel generating set to replace its present unit which they run during brownouts. The new set would cost P135, 000 with a five (5) year life, and no estimated salvage value. Variable cost would be P150, 000 a year. The present generating set has a book value of P75, 000 and a remaining life of 5 years. Its disposal value now is P7, 500, but it would be zero after 5 years. Variable operating cost would be P187, 500 a year. Money is worth 10%. Which is profitable, to buy the new generator set or retain the present set? Support your answer by showing your computation.

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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