An existing factory must be enlarged or replaced to accommodate new production machinery.The structure was built at a cost of ₱ 2.6 million. Its present book value, based on straight linedepreciation is₱ 700,000 but it has been appraised at ₱ 800,000. If the structure is altered, thecost will be ₱ 1.6 million and its service life will be extended 8 years with a salvage value of ₱600,000.A new factory could be purchased or built for ₱ 5.0 million. It would have a life of 20 years and asalvage value of ₱ 700,000. Annual maintenance of the new building would be ₱ 160,000 comparedwith ₱ 100,000 in the enlarged structure. However, the improved layout in the new building wouldreduce annual production cost by ₱ 240,000. All other expenses for the new structure are estimated asbeing equal. Using an investment rate of 8 percent, determine which is the more attractive investmentfor this firm. Use the following method:a) Equivalent Uniform Annual Cost (EUAC) Method An existing factory must be enlarged or replaced to accommodate new production machinery.The structure was built at a cost of 2.6 million. Its present book value, based on straight linedepreciation is 700,000 but it has been appraised at 800,000. If the structure is altered, thecost will be 1.6 million and its service life will be extended 8 years with a salvage value of600,000.A new factory could be purchased or built for 5.0 million. It would have a life of 20 years and asalvage value of 700,000. Annual maintenance of the new building would be 160,000 comparedwith 100,000 in the enlarged structure. However, the improved layout in the new building wouldreduce annual production cost by 240,000. All other expenses for the new structure are estimated asbeing equal. Using an investment rate of 8 percent, determine which is the more attractive investmentfor this firm. Use the following method:a) Equivalent Uniform Annual Cost Method

In the annual cost method the incomes and disbursements will be converted into an equivalent uniform…

Answered: An existing factory must be enlarged or…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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An existing factory must be enlarged or replaced to accommodate new production machinery.
The structure was built at a cost of ₱ 2.6 million. Its present book value, based on straight line
depreciation is₱ 700,000 but it has been appraised at ₱ 800,000. If the structure is altered, the
cost will be ₱ 1.6 million and its service life will be extended 8 years with a salvage value of ₱
600,000.
A new factory could be purchased or built for ₱ 5.0 million. It would have a life of 20 years and a
salvage value of ₱ 700,000. Annual maintenance of the new building would be ₱ 160,000 compared
with ₱ 100,000 in the enlarged structure. However, the improved layout in the new building would
reduce annual production cost by ₱ 240,000. All other expenses for the new structure are estimated as
being equal. Using an investment rate of 8 percent, determine which is the more attractive investment
for this firm. Use the following method:

a) Equivalent Uniform Annual Cost (EUAC) Method

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