Fundamentals of Financial Management, Concise Edition (MindTap Course List)
9th Edition
ISBN:9781305635937
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 11P: REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old...
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SUBJECT:
Number 2
Transcribed Image Text:Question 2
The MGC Company has a contract with a hauler to transport its Naphtha requirements of
3,600,000 liters per year from a refinery in Batangas to its site in Paco at a cost of P1.05 per liter.
It is proposed that the company buys a tanker with a capacity of 18,000 liters to service its
requirements at a first cost of P8, 000,000 life is 6 years and has a salvage value of P800, 000.
Other expenses are as follows:
(a) Diesel fuel at P7.95 per liter and the tanker consumers 120 liter per round trip from Paco to
Batangas and back
(b) Lubricating oil and servicing is P3, 200 per month
(c) Labor including overtime and fringe benefits for one driver and one helper is P21, 000 per
month
(d) Annual taxes and insurance, 5% of first cost
(e) General maintenance per year is P40, 000
(f) Tires cost P32, 000 per set and will be renewed every 150 round trips.
What should the MGC Company do if a 15% interest rate on investment is included in the
analysis? Use ROR method.
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