The Manila Gas Corporation is considering the purchase of a power trench digger for laying main extension on its distribution system. The machine costs Php138,000 with a salvage value of Php50,000 at the end of 10 years. Annual cost of maintenance, insurance and taxes is estimated at 12% of the first cost regardless of the amount the equipment is used. The operating costs consist of 2 men at Php30.00 a day each; fuel and lubrication, Php50 a day. The machine has a capacity of digging 25 meters deep per day. At present, trenches are excavated by hand labor. A laborer can dig ½ meter by 1.2 meters deep per day and receives Php12.00 per day. How long must be excavated each year to make this machine a good investment? Assume money is worth 12%. Use the sinking fund method of depreciation.
The Manila Gas Corporation is considering the purchase of a power trench digger for laying main extension on its
distribution system. The machine costs Php138,000 with a salvage value of Php50,000 at the end of 10 years.
Annual cost of maintenance, insurance and taxes is estimated at 12% of the first cost regardless of the amount the
equipment is used. The operating costs consist of 2 men at Php30.00 a day each; fuel and lubrication, Php50 a
day. The machine has a capacity of digging 25 meters deep per day. At present, trenches are excavated by hand
labor. A laborer can dig ½ meter by 1.2 meters deep per day and receives Php12.00 per day. How long must be
excavated each year to make this machine a good investment? Assume money is worth 12%. Use the sinking
fund method of
Step by step
Solved in 4 steps
