Juliana Cardenas, owner of the Baker Company, was approached by a total local dealer of air-conditioning units. The dealer proposed replacing Baker's old cooling system with a modern, more efficient system. The cost of the new system was quoted at P339,000, but it would save P60,000 per year in energy costs. The estimated life of the new machine system is 10 years, with no salvage value expected. Excited over the possibility of saving P60,000 per year and having a more reliable unit, Juliana requested an analysis of the project's economic viability. All capital projects are required to earn at least the firm's cost of capital, which is 8%. There are no income taxes. Suppose that energy savings are less than claimed. What is the minimum annual cash savings that must be realized for the project to earn a rate equal to the firm's cost of capital? b. P 58, 576 Not Selected " C c. P50,521 , Not Selected Incorrect answer: a. P 59,857 Correct Answer: c. P50,521
Juliana Cardenas, owner of the Baker Company, was approached by a total local dealer of air-conditioning units. The dealer proposed replacing Baker's old cooling system with a modern, more efficient system. The cost of the new system was quoted at P339,000, but it would save P60,000 per year in energy costs. The estimated life of the new machine system is 10 years, with no salvage value expected. Excited over the possibility of saving P60,000 per year and having a more reliable unit, Juliana requested an analysis of the project's economic viability. All capital projects are required to earn at least the firm's cost of capital, which is 8%. There are no income taxes. Suppose that energy savings are less than claimed. What is the minimum annual cash savings that must be realized for the project to earn a rate equal to the firm's cost of capital? b. P 58, 576 Not Selected " C c. P50,521 , Not Selected Incorrect answer: a. P 59,857 Correct Answer: c. P50,521
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 28P: Friedman Company is considering installing a new IT system. The cost of the new system is estimated...
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