A chemical reactor, which will contain corrosive liquids, has been designed. The reactor may be made of mild steel or stainless steel. The initial cost, including installation, of a mild steel reactor is expected to be P72,000 and would last 5 years. Stainless steel is more resistant to the corrosive action of the liquids, but more expensive and will costP120,000. Assuming that both types of reactors will have no salvage or scrap value at the end of their useful lives and could be replaced at the same costs as before, and if money is worth 12% compounded annually, what should the useful life of the stainless reactor be so that the capitalized costs are equal?

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ANNUITIES AND CAPITALIZED COST

SHOW COMPLETE SOLUTIONS. DRAW CASH FLOW DIAGRAMS.

1. A chemical reactor, which will contain corrosive liquids, has been designed. The reactor
may be made of mild steel or stainless steel. The initial cost, including installation, of a
mild steel reactor is expected to be P72,000 and would last 5 years. Stainless steel is more
resistant to the corrosive action of the liquids, but more expensive and will costP120,000.
Assuming that both types of reactors will have no salvage or scrap value at the end of
their useful lives and could be replaced at the same costs as before, and if money is worth
12% compounded annually, what should the useful life of the stainless reactor be so that
the capitalized costs are equal?
Transcribed Image Text:1. A chemical reactor, which will contain corrosive liquids, has been designed. The reactor may be made of mild steel or stainless steel. The initial cost, including installation, of a mild steel reactor is expected to be P72,000 and would last 5 years. Stainless steel is more resistant to the corrosive action of the liquids, but more expensive and will costP120,000. Assuming that both types of reactors will have no salvage or scrap value at the end of their useful lives and could be replaced at the same costs as before, and if money is worth 12% compounded annually, what should the useful life of the stainless reactor be so that the capitalized costs are equal?
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