A recapping plant is planning to acquire a new Diesel generating set to replace its resent unit which they run during brownouts. The new set would cost ₱ 135,000 with a five (5) year-life, and no estimated salvage value. Variable cost would be ₱ 150,000 a year. The old generating set has a book value of ₱ 75,000 and a remaining life of 5 years. Its disposal value now is ₱ 7,500 but it would be zero after 5 years. Variable operating cost would be ₱187,500 a year. Money is worth 10%. Which is profitable, to buy new generator or retain the old set? Support answer using: a) Equivalent Uniform Annual Cost (EUAC) Method
A recapping plant is planning to acquire a new Diesel generating set to replace its resent unit which they run during brownouts. The new set would cost ₱ 135,000 with a five (5) year-life, and no estimated salvage value. Variable cost would be ₱ 150,000 a year. The old generating set has a book value of ₱ 75,000 and a remaining life of 5 years. Its disposal value now is ₱ 7,500 but it would be zero after 5 years. Variable operating cost would be ₱187,500 a year. Money is worth 10%. Which is profitable, to buy new generator or retain the old set? Support answer using: a) Equivalent Uniform Annual Cost (EUAC) Method
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A recapping plant is planning to acquire a new Diesel generating set to replace its resent unit
which they run during brownouts. The new set would cost ₱ 135,000 with a five (5) year-life,
and no estimated salvage value. Variable cost would be ₱ 150,000 a year.
The old generating set has a book value of ₱ 75,000 and a remaining life of 5 years. Its
disposal value now is ₱ 7,500 but it would be zero after 5 years. Variable operating cost would
be ₱187,500 a year. Money is worth 10%.
Which is profitable, to buy new generator or retain the old set? Support answer using:
a) Equivalent Uniform Annual Cost (EUAC) Method
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