worthwhile to invest in the insulation? What is the payback period of the investment?

Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 5EB: A grocery store is considering the purchase of a new refrigeration unit with an Initial Investment...
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It is estimated that insulation of steam pipes in a factory will reduce the fuel bill by as much as 20%. The cost of the insulation is P120,000, and the annual cost of taxes and insurance is 5% of the initial cost. Without the insulation, the annual fuel bill is P190,000. If the insulation is worthless after 6 years, and a minimum return is 12% , would it be worthwhile to invest in the insulation? What is the payback period of the investment?

 

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