plant to provide the company’s present needs can be constructed for P2,800,000 with annual operating disbursements of P600,000. It is expected that at the end of 5 years the production requirements could be doubled, which will necessitate the addition of an extension costing P2,400,000. The disbursement after 5 years will likewise double. A plan to provide the entire expected capacity can be constructed for P4,000,000 and its operating disbursement will be P640,000 when operating on half capacity (for the first 5 years) and P900,000 on full capacity. The plants are predicted to have indeterminately long life. The required rate of return is 20%. What would you recommend? Use Present Worth Cost Method Show complete manual solution
A plant to provide the company’s present needs can be constructed for P2,800,000 with annual operating disbursements of P600,000. It is expected that at the end of 5 years the production requirements could be doubled, which will necessitate the addition of an extension costing P2,400,000. The disbursement after 5 years will likewise double.
A plan to provide the entire expected capacity can be constructed for P4,000,000 and its operating disbursement will be P640,000 when operating on half capacity (for the first 5 years) and P900,000 on full capacity. The plants are predicted to have indeterminately long life. The required rate of return is 20%. What would you recommend?
Use Present Worth Cost Method
Show complete manual solution
Step by step
Solved in 2 steps with 2 images
