A construction firm contemplating the purchase of construction equipment which has a choice between two different models. Equipment A will cost P 725, 050 while Equipment B will cost P 700, 500. The repairs required for each machine are as follows: Equipment A: P 10,000 at the end of 5th year. P 25,500 at the end of 10th year. Equipment B: P 34,500 at the end of 9th year. The machines are alike in all aspects. If this firm is earning 7.25% return in its capital, which equipment should be purchase?
A construction firm contemplating the purchase of construction equipment which has a choice between two different models. Equipment A will cost P 725, 050 while Equipment B will cost P 700, 500. The repairs required for each machine are as follows: Equipment A: P 10,000 at the end of 5th year. P 25,500 at the end of 10th year. Equipment B: P 34,500 at the end of 9th year. The machines are alike in all aspects. If this firm is earning 7.25% return in its capital, which equipment should be purchase?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A construction firm contemplating the purchase of construction equipment which has a choice between two different models. Equipment A will cost P 725, 050 while Equipment B will cost P 700, 500. The repairs required for each machine are as follows:
Equipment A: P 10,000 at the end of 5th year.
P 25,500 at the end of 10th year.
Equipment B: P 34,500 at the end of 9th year.
The machines are alike in all aspects. If this firm is earning 7.25% return in its capital, which equipment should be purchase? And what is the net savings? Justify your answer.
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