An industrial plant has an engine costing of P 7,200 which is 5 years old. Its working life if 15 years and salvage value if P 500. The average operating cost per year thus far has been P 4,200. A new engine costing P 12,000 estimated life 15 years and salvage value of P 800 is guaranteed to have an operating cost of P 3,500 per year. The new engine is considered as a replacement of the old. Will the replacement be justified if P 4,500 can be obtained by the sale of the old engine? Use straight line depreciation with 6% interest rate
An industrial plant has an engine costing of P 7,200 which is 5 years old. Its working life if 15 years and salvage value if P 500. The average operating cost per year thus far has been P 4,200. A new engine costing P 12,000 estimated life 15 years and salvage value of P 800 is guaranteed to have an operating cost of P 3,500 per year. The new engine is considered as a replacement of the old. Will the replacement be justified if P 4,500 can be obtained by the sale of the old engine? Use straight line depreciation with 6% interest rate
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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An industrial plant has an engine costing of P 7,200 which is 5 years old. Its working life if 15 years and salvage value if P 500. The average operating cost per year thus far has
been P 4,200. A new engine costing P 12,000 estimated life 15 years and salvage value
of P 800 is guaranteed to have an operating cost of P 3,500 per year. The new engine
is considered as a replacement of the old. Will the replacement be justified if P 4,500 can be obtained by the sale of the old engine? Use straight line depreciation with 6%
interest rate
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