2. A firm is considering purchasing equipment that will reduce costs by P40,000. The equipment costs P300,000 and has a salvage value of P50,000 and a life of 7 years. The annual maintenance cost is P6, 000. While not in use by the firm, the equipment can be rented to others to generate an income of P10, 000 per year. If money can be invested for an 8 per cent return, is the firm justified in buying the equipment? a. Rate of Return Method b. Annual Worth Method c. Present Worth Method d. Future Worth Method
2. A firm is considering purchasing equipment that will reduce costs by P40,000. The equipment costs P300,000 and has a salvage value of P50,000 and a life of 7 years. The annual maintenance cost is P6, 000. While not in use by the firm, the equipment can be rented to others to generate an income of P10, 000 per year. If money can be invested for an 8 per cent return, is the firm justified in buying the equipment? a. Rate of Return Method b. Annual Worth Method c. Present Worth Method d. Future Worth Method
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 5PA: Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated...
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![2. A firm is considering purchasing equipment that will reduce costs by P40,000. The
equipment costs P300,000 and has a salvage value of P50,000 and a life of 7 years. The
annual maintenance cost is P6, 000. While not in use by the firm, the equipment can be
rented to others to generate an income of P10, 000 per year. If money can be invested for
an 8 per cent return, is the firm justified in buying the equipment?
a. Rate of Return Method
b. Annual Worth Method
c. Present Worth Method
d. Future Worth Method](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc32dca03-fd9c-44c8-91ab-133592835a8a%2F34a2c530-1929-4b83-94d0-ba39e97059d8%2Fcms5dx8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2. A firm is considering purchasing equipment that will reduce costs by P40,000. The
equipment costs P300,000 and has a salvage value of P50,000 and a life of 7 years. The
annual maintenance cost is P6, 000. While not in use by the firm, the equipment can be
rented to others to generate an income of P10, 000 per year. If money can be invested for
an 8 per cent return, is the firm justified in buying the equipment?
a. Rate of Return Method
b. Annual Worth Method
c. Present Worth Method
d. Future Worth Method
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