An existing compressor supply only 70% of the requirements of a manufacturing plant. It costs P 24,000.00 annually for its operation and maintenance and can be sold now for P 15,000.00. A small compressor which will furnish the required 30% can be purchased for P 27,000.00 with an annual operating and maintenance cost of P 13,500.00. A full capacity compressor which can supply the above total requirements can be purchased for P 60,000.00 with an annual operational cost of P 32,000.00. If each compressor is expected to have a useful life of 10 years with 10% of the first cost as salvage value and the company is expected 18% rate of return. Which alternative would you recommend?
An existing compressor supply only 70% of the requirements of a manufacturing plant. It costs P 24,000.00 annually for its operation and maintenance and can be sold now for P 15,000.00. A small compressor which will furnish the required 30% can be purchased for P 27,000.00 with an annual operating and maintenance cost of P 13,500.00. A full capacity compressor which can supply the above total requirements can be purchased for P 60,000.00 with an annual operational cost of P 32,000.00. If each compressor is expected to have a useful life of 10 years with 10% of the first cost as salvage value and the company is expected 18% rate of return. Which alternative would you recommend?
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:An existing compressor supply only 70% of the requirements of a manufacturing plant. It
costs P 24,000.00 annually for its operation and maintenance and can be sold now for P
15,000.00. A small compressor which will furnish the required 30% can be purchased for
P 27,000.00 with an annual operating and maintenance cost of P 13,500.00. A full capacity
compressor which can supply the above total requirements can be purchased for P
60,000.00 with an annual operational cost of P 32,000.00. If each compressor is expected
to have a useful life of 10 years with 10% of the first cost as salvage value and the company
is expected 18% rate of return. Which alternative would you recommend?
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