In building their plant, the officers of the International Leather Company had the choice alternatives. One alternative is to build Metro Manila where the plant would cost P2,000,000. Labor would cost annually P120,000 and annual overhead P40,000. Taxes and insurance would total 5% of the first cost of the plant. The second alternative would be to build in Bulacan a plant costing P2,250,000. Labor would cost P100,000 annually and overhead would be P55,000. Taxes and insurance would be 3% of the first cost. The cost of raw materials would be the same in either plant. If capital must be recovered within 10 years and money is worth at least 20%, which site should the officers company choose?
In building their plant, the officers of the International Leather Company had the choice alternatives. One alternative is to build Metro Manila where the plant would cost P2,000,000. Labor would cost annually P120,000 and annual overhead P40,000. Taxes and insurance would total 5% of the first cost of the plant. The second alternative would be to build in Bulacan a plant costing P2,250,000. Labor would cost P100,000 annually and overhead would be P55,000. Taxes and insurance would be 3% of the first cost. The cost of raw materials would be the same in either plant. If capital must be recovered within 10 years and money is worth at least 20%, which site should the officers company choose?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:5. In building their plant, the officers of the International Leather Company had the choice
alternatives.
One alternative is to build Metro Manila where the plant would cost P2,000,000. Labor
would cost annually P120,000 and annual overhead P40,000. Taxes and insurance would
total 5% of the first cost of the plant.
The second alternative would be to build in Bulacan a plant costing P2,250,000. Labor
would cost P100,000 annually and overhead would be P55,000. Taxes and insurance
would be 3% of the first cost. The cost of raw materials would be the same in either
plant. If capital must be recovered within 10 years and money is worth at least 20%,
which site should the officers company choose?
Ans. Plant in Metro Manila
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