An investment of ₱270,000 can be made in a project that will produce a uniform annual revenue of ₱185,400 for 5 years and then have a salvage value of 10%of the investment. Out-of-pocket costs for operations and maintenance will be ₱81,000 per year. Taxes and insurance will be 4% of the first cost per year. The company expects capital to earn not less than 25% before income taxes. Is this a desirable investment? What is the payback period of the investment
An investment of ₱270,000 can be made in a project that will produce a uniform annual revenue of ₱185,400 for 5 years and then have a salvage value of 10%of the investment. Out-of-pocket costs for operations and maintenance will be ₱81,000 per year. Taxes and insurance will be 4% of the first cost per year. The company expects capital to earn not less than 25% before income taxes. Is this a desirable investment? What is the payback period of the investment
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 3P
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An investment of ₱270,000 can be made in a project that will produce a uniform annual revenue of ₱185,400 for 5 years and then have a salvage value of 10%of the investment. Out-of-pocket costs for operations and maintenance will be ₱81,000 per year. Taxes and insurance will be 4% of the first cost per year. The company expects capital to earn not less than 25% before income taxes. Is this a desirable investment? What is the payback period of the investment?
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