The consolidated oil company must install antipollution equipment in a new refinery to meet federal air legislation. Two types ofequipment are being considered, which will have investment and annual operating costs as follows;EquipmentCInvestmentP600,000P760,000P1,240,000P1,600,000Power68,00068,000120,000126,000Labor40,00045,00065,00050,000Maintenance660,000600,000420,000370,000Taxes and Insurance12,00015,00025,00028,000Assuming an economic life of 10 years for each type, no salvage value, and that the company wants a before-tax return of 20 %on its capital, determine which alternative should be purchased using the following economic methods;a) Rate of return method.b) Annual cost methodc) Present worth methodd) Equivalent uniform annual cost method

Present worth is the current value of cash flows that are expected to happen in the future.

company wants a before-t on its capital, determine which alternative should be purchased using the following economic methods; a) Rate of return method. b) Annual cost method c) Present worth method d) Equivalent uniform annual cost method

company wants a before-t on its capital, determine which alternative should be purchased using the following economic methods; a) Rate of return method. b) Annual cost method c) Present worth method d) Equivalent uniform annual cost method

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

The consolidated oil company must install antipollution equipment in a new refinery to meet federal air legislation. Two types of
equipment are being considered, which will have investment and annual operating costs as follows;
Equipment
C
Investment
P600,000
P760,000
P1,240,000
P1,600,000
Power
68,000
68,000
120,000
126,000
Labor
40,000
45,000
65,000
50,000
Maintenance
660,000
600,000
420,000
370,000
Taxes and Insurance
12,000
15,000
25,000
28,000
Assuming an economic life of 10 years for each type, no salvage value, and that the company wants a before-tax return of 20 %
on its capital, determine which alternative should be purchased using the following economic methods;
a) Rate of return method.
b) Annual cost method
c) Present worth method
d) Equivalent uniform annual cost method

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