An existing machine in a factory has an annual maintenance cost of Php 40,000. A new and more efficient machine will require an investment of Php 90,000 and is estimated to have salvage value of Php 30,000 at the end of 8 years. Its annual expenses for maintenance and upkeep etc. is total of Php 22,000. If the company expects to earn 12% on its investment, will it be worthwhile to purchase the new machine using the present worth? Use the PW method. Show the cash flow diagram and complete solution. Do not use excel please. Thank you.
An existing machine in a factory has an annual maintenance cost of Php 40,000. A new and more efficient machine will require an investment of Php 90,000 and is estimated to have salvage value of Php 30,000 at the end of 8 years. Its annual expenses for maintenance and upkeep etc. is total of Php 22,000. If the company expects to earn 12% on its investment, will it be worthwhile to purchase the new machine using the present worth? Use the PW method. Show the cash flow diagram and complete solution. Do not use excel please. Thank you.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 3P
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An existing machine in a factory has an annual maintenance cost of Php 40,000. A new and more efficient machine will require an investment of Php 90,000 and is estimated to have salvage value of Php 30,000 at the end of 8 years. Its annual expenses for maintenance and upkeep etc. is total of Php 22,000. If the company expects to earn 12% on its investment, will it be worthwhile to purchase the new machine using the present worth? Use the PW method.
Show the cash flow diagram and complete solution. Do not use excel please. Thank you.
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