A decision by the supervising engineer must be made whether to replace a certain engine with a new one or to rebore the cylinders of the old engine and thoroughly recondition it. The original cost of the engine 10 yrs ago was P 70,000 to rebore and recondition it now will cost P 28,000 but would extend its useful life for 5 yrs. A new engine will have a first cost of P 62,000 and will have an estimated life of 10 yrs. It is expected that the annual costs of fuel and lubricants with the reconditioned engine will be about P 20,000 and that this cost will be 15% less with the new engine. It is also believed that repairs will be P 2,500 a year less with the new engine than with the reconditioned one. If money is worth 10%, what would you recommend? Use annual cost method.
A decision by the supervising engineer must be made whether to replace a certain engine with a new one or to rebore the cylinders of the old engine and thoroughly recondition it. The original cost of the engine 10 yrs ago was P 70,000 to rebore and recondition it now will cost P 28,000 but would extend its useful life for 5 yrs. A new engine will have a first cost of P 62,000 and will have an estimated life of 10 yrs. It is expected that the annual costs of fuel and lubricants with the reconditioned engine will be about P 20,000 and that this cost will be 15% less with the new engine. It is also believed that repairs will be P 2,500 a year less with the new engine than with the reconditioned one. If money is worth 10%, what would you recommend? Use annual cost method.
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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A decision by the supervising engineer must be made whether to replace a certain engine with a new one or to rebore the cylinders of the old engine and thoroughly recondition it. The original cost of the engine 10 yrs ago was P 70,000 to rebore and recondition it now will cost P 28,000 but would extend its useful life for 5 yrs. A new engine will have a first cost of P 62,000 and will have an estimated life of 10 yrs. It is expected that the annual costs of fuel and lubricants with the reconditioned engine will be about P 20,000 and that this cost will be 15% less with the new engine. It is also believed that repairs will be P 2,500 a year less with the new engine than with the reconditioned one. If money is worth 10%, what would you recommend? Use annual cost method.
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