A company bought a generating set (or Genset) years ago at P5M and is now fully depreciated. It plans to fix it at a cost of P2,731,809 so that it would still have 6-year life remaining and be annually operated at a cost of P1,511,338 and be sold by the end of its life at P400,000. Simultaneously, it will buy a medium-sized Genset at a cost of P2.5M to be operated at P0.25M annually, and a salvage value of P0.35M at the end of 7 years. Leasing is the 2nd option having an annual payment of P1.4M and the initial payment of P0.1M, lasting for 4 years. What is the Annual Equivalent Cost of the 1st Option when interest is 22% cpd.-annually?

A company bought a generating set (or Genset) years ago at P5M and is now fully depreciated. It plans to fix it at a cost of P2,731,809 so that it would still have 6-year life remaining and be annually operated at a cost of P1,511,338 and be sold by the end of its life at P400,000. Simultaneously, it will buy a medium-sized Genset at a cost of P2.5M to be operated at P0.25M annually, and a salvage value of P0.35M at the end of 7 years. Leasing is the 2nd option having an annual payment of P1.4M and the initial payment of P0.1M, lasting for 4 years. What is the Annual Equivalent Cost of the 1st Option when interest is 22% cpd.-annually?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 4E

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