The engineer of a medium-scale industry was instructed to prepare at least two plans which is to be considered by management for the improvement of their operations. Plan A calls for an initial investment of 200,000 pesos now with a prospective salvage value of 20% of the first cost 20 years hence. The operation and maintenance disbursements are estimated to be 15,000 per year and taxes will be 2% of the first cost. Plan B calls for an immediate investment of 140,000 pesos and a second investment of 160,000 eight years later. The operation and maintenance disbursements will be 9,000 a year for the initial installation and 8,000 a year for the second installation. At the end of 20 years the salvage value shall be 20% of the investments. Taxes will be 2% of the first cost. If money is worth 12%, which plan would you recommend?
Using Annual Worth Cost Method
The engineer of a medium-scale industry was instructed to prepare at least two plans which is to be considered by management for the improvement of their operations.
Plan A calls for an initial investment of 200,000 pesos now with a prospective salvage value of 20% of the first cost 20 years hence. The operation and maintenance disbursements are estimated to be 15,000 per year and taxes will be 2% of the first cost.
Plan B calls for an immediate investment of 140,000 pesos and a second investment of 160,000 eight years later. The operation and maintenance disbursements will be 9,000 a year for the initial installation and 8,000 a year for the second installation. At the end of 20 years the salvage value shall be 20% of the investments. Taxes will be 2% of the first cost.
If money is worth 12%, which plan would you recommend?
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