the rate of return on additional investment
!!!USING
A company that sells computers has proposed to a small public utility company that it purchase a small electronic computer for P1,000,000 to replace ten calculating machines and their operators. An annual service maintenance contract for the computer will be provided at a cost of P100,000 per year. One operator will be required at a salary of P96,000 per year and one programmer at a salary of P144,000 per year. The expected economical life of the computer is 10 years.
The calculating machine costs P7,000 each when new, 5 years ago, and presently can be sold for P2,000 each. They have an estimated life of 8 years and an expected ultimate trade-in value of P1,000 each. Each calculating machine operator receives P84,000 per year.
If the capital costs the company about 25%, using the rate of return on additional investment would you recommend the computer installation?
!!!USING RATE OF RETURN (ROR) METHOD!!!
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