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 P 72,000 and would last 5 years. Stainless steel is more resistant to the corrosive action of the liquids, but is more expensive and will cost P 120,000. 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?

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 P 72,000 and would last 5 years. Stainless steel is more resistant to the corrosive action of the liquids, but is more expensive and will cost P 120,000. 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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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