The engineer of a medium scale industry was instructed to prepare at least two plans which is to be considered by management for the improvement of their operations. Plan “A” calls for an initial investment of P200,000 now with a prospective salvage value of 20% of the first cost 20 years hence. The operation and maintenance disbursements are estimated to be P15,000 a year and taxes will be 2% of first cost. Plan “B” calls for an immediate investment of P140,000 and a second investment of P160,000 eight years later. The operation and maintenance disbursements will be P9,000 a year for the initial installation, and P8,000 a year for the second installation. At the end of 20 years the salvage value shall be 20% of the investments. Taxes will be 2% of the first cost. If money worth 12%, which plan would you recommend? (a) Use the present worth cost method (PWC) (b) Use the equivalent uniform annual cost method (EUAC)
The engineer of a medium scale industry was instructed to prepare at least two plans which is to be considered by management for the improvement of their operations. Plan “A” calls for an initial investment of P200,000 now with a prospective salvage value of 20% of the first cost 20 years hence. The operation and maintenance disbursements are estimated to be P15,000 a year and taxes will be 2% of first cost. Plan “B” calls for an immediate investment of P140,000 and a second investment of P160,000 eight years later. The operation and maintenance disbursements will be P9,000 a year for the initial installation, and P8,000 a year for the second installation. At the end of 20 years the salvage value shall be 20% of the investments. Taxes will be 2% of the first cost. If money worth 12%, which plan would you recommend? (a) Use the present worth cost method (PWC) (b) Use the equivalent uniform annual cost method (EUAC)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The engineer of a medium scale industry was instructed to prepare at least two plans which
is to be considered by management for the improvement of their operations. Plan “A” calls
for an initial investment of P200,000 now with a prospective salvage value of 20% of the first
cost 20 years hence. The operation and maintenance disbursements are estimated to be
P15,000 a year and taxes will be 2% of first cost. Plan “B” calls for an immediate investment
of P140,000 and a second investment of P160,000 eight years later. The operation and
maintenance disbursements will be P9,000 a year for the initial installation, and P8,000 a year
for the second installation. At the end of 20 years the salvage value shall be 20% of the
investments. Taxes will be 2% of the first cost. If money worth 12%, which plan would you
recommend?
(a) Use the present worth cost method (PWC)
(b) Use the equivalent uniform annual cost method (EUAC)
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