Four years ago, an ore-crushing unit was installed at a mine which cost P81,000. Annual operating costs for this unit are P3,540. This unit was estimated to have a life of 10 years. The quantity of ore to be handled is to be doubled and is expected to continue at this higher rate for at least 10 years. A unit that will handle the same quantity of ore and have the same operating costs as the one now in service can be installed for P75,000. This unit will have a useful life of 6 years. A unit with double the capacity of the one now in use can be installed for P112,000. Its life is estimated at 6 years and its annual operating costs are estimated at P4,950. The present realizable value of the unit now in use is P26,000. All units under consideration will have an estimated salvage value at retirement age of 12% of the original cost. Interest rate 20%, annual taxes and insurance are 2.5% of the original cost. What would you recommend?
Four years ago, an ore-crushing unit was installed at a mine which cost P81,000. Annual operating costs for this unit are P3,540. This unit was estimated to have a life of 10 years. The quantity of ore to be handled is to be doubled and is expected to continue at this higher rate for at least 10 years. A unit that will handle the same quantity of ore and have the same operating costs as the one now in service can be installed for P75,000. This unit will have a useful life of 6 years. A unit with double the capacity of the one now in use can be installed for P112,000. Its life is estimated at 6 years and its annual operating costs are estimated at P4,950. The present realizable value of the unit now in use is P26,000. All units under consideration will have an estimated salvage value at retirement age of 12% of the original cost. Interest rate 20%, annual taxes and insurance are 2.5% of the original cost. What would you recommend?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Please see the image attached. I really need the solution as soon as possible =(( Im hoping that you can answer it =((

Transcribed Image Text:Four years ago, an ore-crushing unit was installed at a mine which cost P81,000.
Annual operating costs for this unit are P3,540. This unit was estimated to have a life
of 10 years. The quantity of ore to be handled is to be doubled and is expected to
continue at this higher rate for at least 10 years. A unit that will handle the same
quantity of ore and have the same operating costs as the one now in service can be
installed for P75,000. This unit will have a useful life of 6 years. A unit with double the
capacity of the one now in use can be installed for P112,000. Its life is estimated at 6
years and its annual operating costs are estimated at P4,950. The present realizable
value of the unit now in use is P26,000. All units under consideration will have an
estimated salvage value at retirement age of 12% of the original cost. Interest rate is
20%, annual taxes and insurance are 2.5% of the original cost. What would you
recommend?
Retain the existing unit
Buy the small new unit
Expert Solution

This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps

Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you


Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,

Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,


Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,

Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON

Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education

Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education