Answered: certain brand of Cheddar Cheese can be…

certain brand of Cheddar Cheese can be manufactured with two different processes. Costs associated with each process are shown below. Minimum acceptable rate of return is 10%. What is the present

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A certain brand of Cheddar Cheese can be manufactured with two different processes. Costs associated with each process are shown below. Minimum acceptable rate of return is 10%.

What is the present worth of Process A over 10 years?

Initial Cost
Salvage Value
Operating Costs
Receipts
Life
PROCESS A
P 130, 000
P 1,000
P 9, 500/yr
P 30, 000/yr
10 years
PROCESS B
P 220, 000
P 22,000 @ yr 20
P 121, 000 @ yr 10
P 7, 500/yr
P 30, 000/yr
20 years

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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Selection Of A Minimum Attractive Rate Of Return

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