A young mechanical engineer is considering establishing his own small comp nvestment of P400,000 will be required which will be recovered in 15 years. estimated that sales will be P800,000 per year and that operating expenses Follows: Materials P160,000 per year Labor P280,000 per year Overhead P40,000 +10% of sales per year Selling expense P60,000 The man will give you his regular job paying P216,000 per year and devote f the operation of the business; this will result in decreasing labor cost by P40, vear matorial cost hy P28.000 per vear and overbead cost by P32. 000 per v
A young mechanical engineer is considering establishing his own small comp nvestment of P400,000 will be required which will be recovered in 15 years. estimated that sales will be P800,000 per year and that operating expenses Follows: Materials P160,000 per year Labor P280,000 per year Overhead P40,000 +10% of sales per year Selling expense P60,000 The man will give you his regular job paying P216,000 per year and devote f the operation of the business; this will result in decreasing labor cost by P40, vear matorial cost hy P28.000 per vear and overbead cost by P32. 000 per v
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 19P
Related questions
Question
![A young mechanical engineer is considering establishing his own small company. An
investment of P400,000 will be required which will be recovered in 15 years. It is
estimated that sales will be P800,000 per year and that operating expenses will be as
follows:
Materials
P160,000 per year
Labor
P280,000 per year
Overhead
P40,000 +10% of sales per year
Selling expense
P60,000
The man will give you his regular job paying P216,000 per year and devote full time to
the operation of the business; this will result in decreasing labor cost by P40,000 per
year, material cost by P28,000 per year and overhead cost by P32,000 per year. If the
man expects to earn at least 20% of his capital, should he invest using the ROR method
and what is the ROR?
a. ROR = 13.224% (not justified)
b. ROR = 18.345 % (justified)
%3D
c. ROR = 23.564% (not justified)
d. ROR = 23.564 % (justified)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F67b1cb88-b9a5-4f03-8c77-dad9323b8bec%2F4e8c1360-fbb1-4147-aea7-6d8500d3d075%2F2u2h066_processed.png&w=3840&q=75)
Transcribed Image Text:A young mechanical engineer is considering establishing his own small company. An
investment of P400,000 will be required which will be recovered in 15 years. It is
estimated that sales will be P800,000 per year and that operating expenses will be as
follows:
Materials
P160,000 per year
Labor
P280,000 per year
Overhead
P40,000 +10% of sales per year
Selling expense
P60,000
The man will give you his regular job paying P216,000 per year and devote full time to
the operation of the business; this will result in decreasing labor cost by P40,000 per
year, material cost by P28,000 per year and overhead cost by P32,000 per year. If the
man expects to earn at least 20% of his capital, should he invest using the ROR method
and what is the ROR?
a. ROR = 13.224% (not justified)
b. ROR = 18.345 % (justified)
%3D
c. ROR = 23.564% (not justified)
d. ROR = 23.564 % (justified)
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