A utility company is considering the following plans to provide a certain service required by present demand and the prospective growth of demand for the coming 18 years. Plan R requires an immediate investment of P500,000 in property that has an estimated life of18 years and with 20% terminal salvage value. Annual disbursements for operation and maintenance will be P50,000. Annual property taxes will be 2% of first cost. Plan S requires an immediate investment of P300,000 in a property that has an estimated life of18 years and with 20% terminal salvage value. Annual disbursements for its operation and maintenance during the first 6 years will be P40,000. After 6 years, an additional investment of P400,000 will be required in property having an estimated life of 12 years with 40% terminal salvage value. After this additional property is installed, annual disbursements for operation and maintenance of the combined property will be P60,000. Annual property taxes will be 2% of the first cost of the property in service at any time. Money is worth 12%. What would you recommend?

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.