Problem:15Engine valves company is considering building an assembly plant .The decision has been narrowed down totwo possibilities. The company desires to choose the best plant at a level of operation of 10,000 gadgets amonth. Both plants have an expected life of 10 years and are expected to have any salvage value at the timeof their retirements .The cost of capital is 10 percent . Assuming a zero income tax rate , suggest what wouldbe the desirable choice ?Cost of the monthly output of 10,000 valvesLarge Plant RsSmall plant RsInitial cost30,00,00022,93,500Direct labour : First shift15,00,000 per year7,80,000 per yearSecond shift9.00,000 per yearOverheads2,40,000 per year2,10,000 per year

In making the decision, we can use the Present Value of costs of the given alternatives. The…

Answered: Engine valves company is considering…

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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