A firm is considering purchasing equipment that will reduce costs by P40,000. The equipment costs P300,000 and has a salvage value of P50,000 and a life of 7 years. The annual maintenance cost is P6,000. While not in use by the firm, the equipment can be rented to others to generate an income of P10,000 per year. If money can be invested for an 8 percent return, is the firm justified in buying the equipment?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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4. A firm is considering purchasing equipment that will reduce costs by
P40,000. The equipment costs P300,000 and has a salvage value of
P50,000 and a life of 7 years. The annual maintenance cost is P6,000.
While not in use by the firm, the equipment can be rented to others to
generate an income of P10,000 per year. If money can be invested for
an 8 percent return, is the firm justified in buying the equipment?
Transcribed Image Text:4. A firm is considering purchasing equipment that will reduce costs by P40,000. The equipment costs P300,000 and has a salvage value of P50,000 and a life of 7 years. The annual maintenance cost is P6,000. While not in use by the firm, the equipment can be rented to others to generate an income of P10,000 per year. If money can be invested for an 8 percent return, is the firm justified in buying the equipment?
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