An oil well which could produce a net income of P15,083,207 per year for 25 years is being purchased by group of businessmen. If the return on investment is targeted to be 19.534% and a sinking fund at 17.351% interest is to be established to recover the investment. a. How much capital must be invested, assuming the oil well will become useless after 25 years? b. How much capital must be invested, if after 25 years you can receive P1,835,016 from the oil well? c. What percentage decrease in the rate of return on investment to increase the capital by 6%? Assume no salvage value.

An oil well which could produce a net income of P15,083,207 per year for 25 years is being purchased by group of businessmen. If the return on investment is targeted to be 19.534% and a sinking fund at 17.351% interest is to be established to recover the investment. a. How much capital must be invested, assuming the oil well will become useless after 25 years? b. How much capital must be invested, if after 25 years you can receive P1,835,016 from the oil well? c. What percentage decrease in the rate of return on investment to increase the capital by 6%? Assume no salvage value.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...

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