A firm owns a drilling equipment that it is contemplating replacing. It is believed that P1,500,000 could be obtained for the old equipment if it were sold now, but it can be productively used for four more years at which time its market value will be zero. The equipment has an operating and maintenance of P600,000 per year. The firm can purchase a new machine, with the same functionality as the current machine, for P5,500,000. In four years the market value of the new machine is estimated to be P2,275,000. Annual operating and maintenance costs will be P1,850,000 per year. Should the old drilling equipment be replaced using a before-tax MARR of 15% and a study period of four years?

A firm owns a drilling equipment that it is contemplating replacing. It is believed that P1,500,000 could be obtained for the old equipment if it were sold now, but it can be productively used for four more years at which time its market value will be zero. The equipment has an operating and maintenance of P600,000 per year. The firm can purchase a new machine, with the same functionality as the current machine, for P5,500,000. In four years the market value of the new machine is estimated to be P2,275,000. Annual operating and maintenance costs will be P1,850,000 per year. Should the old drilling equipment be replaced using a before-tax MARR of 15% and a study period of four 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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A construction company is deciding to undertake a project. The project is quite profitable as it will generate net cash inflows of $20 million per year for 5 years. However, it will cause pollution to the nearby residents. The company can mitigate this pollution by investing additional 10 million at Year 0 but legally it is not compulsory for it to do so. Undertaking this project would cost $60 million without mitigation. If the firm does invest in mitigation, the annual cash inflows would be $22 million. The risk adjusted WACC is 12%. Calulate the Payback with and without mitgationwhat is the discounted payback with and without mitigation?Should the project be undertaken? If so, should the firm do mitigation? (hint: discuss all the criterias you have calculated in earlier parts)How should the environmental effects be dealt with when this project is evaluated
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Sir please help me
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