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 Q requires an immediate investment of P500,000 in property that has an estimated life of 18 years and with 20% terminal salvage value. Annual disbursements for operation and maintenance will be P50,000. Annual property taxes will be 2% of the first cost. Plan R requires an immediate investment of P600,000 in property that has an estimated life of 18 years and with 25% terminal salvage value. Annual disbursements for operation and maintenance will be P35,000. Annual property taxes will be 1.5% of the first cost. Plan S requires an immediate investment of P300,000 in property that has an estimated life of 18 years with 20% terminal salvage value. Annual disbursements for its operation and maintenance will be P40,000. Annual property taxes will be 2% of the first cost of property in service at any time. Money is worth 12%. What would you recommend? Use Future Worth Cost Method.

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 Q requires an immediate investment of P500,000 in property that has an estimated life of 18 years and with 20% terminal salvage value. Annual disbursements for operation and maintenance will be P50,000. Annual property taxes will be 2% of the first cost. Plan R requires an immediate investment of P600,000 in property that has an estimated life of 18 years and with 25% terminal salvage value. Annual disbursements for operation and maintenance will be P35,000. Annual property taxes will be 1.5% of the first cost. Plan S requires an immediate investment of P300,000 in property that has an estimated life of 18 years with 20% terminal salvage value. Annual disbursements for its operation and maintenance will be P40,000. Annual property taxes will be 2% of the first cost of property in service at any time. Money is worth 12%. What would you recommend? Use Future Worth Cost Method.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 2CE

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