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
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
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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