A company that manufactures magnetic membrane switches is investigating two production options that have the estimated cash flows shown. Which one should be selected on the basis of a future worth analysis at 6% per year? In-house Contract First cost P 25,000,000 Annual cost P 5,000,000 P 4,600,000 Annual income P 14,000,000 P 7,100,000 Salvage value P 2,000,000 Life, years

A company that manufactures magnetic membrane switches is investigating two production options that have the estimated cash flows shown. Which one should be selected on the basis of a future worth analysis at 6% per year? In-house Contract First cost P 25,000,000 Annual cost P 5,000,000 P 4,600,000 Annual income P 14,000,000 P 7,100,000 Salvage value P 2,000,000 Life, years

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

A company that manufactures magnetic membrane switches is investigating two production
options that have the estimated cash flows shown. Which one should be selected on the basis
of a future worth analysis at 6% per year?
In-house
Contract
First cost
P 25,000,000
Annual cost
P 5,000,000
P 4,600,000
Annual income
P 14,000,000
P 7,100,000
Salvage value
P 2,000,000
Life, years

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