The engineer of a medium scale industry was instructed to prepare two plans to be considered by management to improve their operations. Plan A calls for an initial investment of P200,000 now with an expected salvage of 20% of the first cost 20 years hence. The operation and maintenance disbursements are estimated to be P15,000 each year and taxes will be 2% of the first cost. Plan B calls for
Solve and show solutions completely. Draw the cash flow diagrams.
The engineer of a medium scale industry was instructed to prepare two plans to be considered by management to improve their operations. Plan A calls for an initial investment of P200,000 now with an expected salvage of 20% of the first cost 20 years hence. The operation and maintenance disbursements are estimated to be P15,000 each year and taxes will be 2% of the first cost. Plan B calls for an immediate investment of P140,000 and a second investment of P160,000 eight years later. The operation maintenance disbursements will be P9,000 a year for the initial installation and P8,000 a year for the second installation. At the end of 20 years, the salvage value will be 20% of the investments. Taxes will be 2% of first cost. If money is worth12%, which plan will you recommend using present worth cost method.
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