Answered: Vendor R Vendor T Rental Initial cost,…

Vendor R Vendor T Rental Initial cost, $ -75,000 - 125,000 Annual upkeep, $ per year -27,000 - 12,000 Annual rental, $ per year -50,000 Salvage value, $ 30,000 Estimated life, years 3 Maximum of 3 2.

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter7: Fixed Assets, Natural Resources, And Intangible Assets

Section: Chapter Questions

Problem 7.3.3MBA

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

The manager of engineering at the 900-megawatt Hamilton Nuclear Power Plant has three options to supply personal safety equipment to employees. Two are vendors who sell the items, and the third alternative is to rent the equipment for $50,000 per year, but for no more than 3 years per contract. These items have relatively short lives due to constant use. The MARR is 10% per year.

a. Select from the two vendors using the LCM and PW analysis.
b. Determine which of the three options is cheaper over a study period of 3 years.

Vendor R
Vendor T
Rental
Initial cost, $
-75,000
- 125,000
Annual upkeep,
$ per year
-27,000
- 12,000
Annual rental,
$ per year
-50,000
Salvage value, $
30,000
Estimated life,
years
3
Maximum
of 3
2.

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