An oil company plans to purchase a piece of vacant land at the corner of two busy streets for $50,000. On properties of this type, the company installs businesses of three different types. Each has an estimated useful life of 15 years. The salvage value for each is estimated to be the $50,000 land cost. Plan Cost (in addition to land cost) Type of business A $ 83,000 Conventional gas station B $ 195,000 Add automatic car wash C $ 115,000 Add quick car wash If the oil company expects a 10% rate of return on its investments, which plan (if any) should be selected? Use incremental analysis, before tax.
An oil company plans to purchase a piece of vacant land at the corner of two busy streets for $50,000. On properties of this type, the company installs businesses of three different types. Each has an estimated useful life of 15 years. The salvage value for each is estimated to be the $50,000 land cost. Plan Cost (in addition to land cost) Type of business A $ 83,000 Conventional gas station B $ 195,000 Add automatic car wash C $ 115,000 Add quick car wash If the oil company expects a 10% rate of return on its investments, which plan (if any) should be selected? Use incremental analysis, before tax.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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An oil company plans to purchase a piece of vacant land at the corner of two busy streets for $50,000. On properties of this type, the company installs businesses of three different types. Each has an estimated useful life of 15 years. The salvage value for each is estimated to be the $50,000 land cost. Plan Cost (in addition to land cost) Type of business A $ 83,000 Conventional gas station B $ 195,000 Add automatic car wash C $ 115,000 Add quick car wash If the oil company expects a 10% rate of return on its investments, which plan (if any) should be selected? Use incremental analysis, before tax.
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