Answered: For its proposed expansion, an ice…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 10PA: The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000,...

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For its proposed expansion, an ice plant company is selecting from two offers of ice cans. The data on the offers are as follows:

	OFFER A	OFFER B
Total Cost	P730,000	P650,000
Annual Maintenance	P65,000	P91,008
No. of Life	12	8

For their replacements, the company is putting up a sinking fund to earn 17.5% interest compounded annually. If the money to purchase the ice cans is to be borrowed at 25% annual interest and the tax on the first cost is 3%, which offer will you recommend to be purchased? Show solutions.

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