Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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 P200,000 now with a prospective salvage value of 20% of the first cost 20
years hence. The operation and maintenance disbursement are estimated to be P15,000 a year
and taxes will be 2% of first cost.
Plan "B" calls for an immediate investment of P140,000 and a second investment of 160,000
eight years later. the operation and maintenance disbursements will be P9,000 a year for initial
installation and P8,000 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? Solve using present worth cost
method and equivalent uniform annual cost method.
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