1. An investment of P270, 000 can be made in a project that will produce a uniform annual revenue of P185, 400 for 5 years and then have a salvage value of 10% of the investment. Out-of-pocket costs for operation and maintenance will be P81, 000 per year. Taxes and insurance will be 4% of the first cost per year. The company expects capital to earn not less than 25% before income taxes. Is this a desirable investment? What is the payback period of the investment? a. PW Method

1. An investment of P270, 000 can be made in a project that will produce a uniform annual revenue of P185, 400 for 5 years and then have a salvage value of 10% of the investment. Out-of-pocket costs for operation and maintenance will be P81, 000 per year. Taxes and insurance will be 4% of the first cost per year. The company expects capital to earn not less than 25% before income taxes. Is this a desirable investment? What is the payback period of the investment? a. PW Method

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Please include a cash flow diagram (like the pic I included)

CFD:
A
A A A
3
18
19
20
950k
r.6%
Seln:
A = asoo00 (Ale, 6%,20)
0-66(1.06)20
asboos
1.0c0,
A = $ 82,821

1. An investment of P270, 000 can be made in a project that will produce a uniform annual
revenue of P185, 400 for 5 years and then have a salvage value of 10% of the investment.
Out-of-pocket costs for operation and maintenance will be P81, 000 per year. Taxes and
insurance will be 4% of the first cost per year. The company expects capital to earn not less
than 25% before income taxes. Is this a desirable investment? What is the payback period
of the investment?
a. PW Method
b. FW Method

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