1.) A project is estimated to cost P100,000, lasts 8 years and have a P10,000 salvage value. The annual gross income is expected to average P24,000, and annual expenses, excluding depreciation will total P6,000. If capital is earning 10% before income tax, determine if this is a desirable investment using A.) Rate of Return Method and B.) Annual Cost or Worth Method.
1.) A project is estimated to cost P100,000, lasts 8 years and have a P10,000 salvage value. The annual gross income is expected to average P24,000, and annual expenses, excluding depreciation will total P6,000. If capital is earning 10% before income tax, determine if this is a desirable investment using A.) Rate of Return Method and B.) Annual Cost or Worth Method.
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:1.) A project is estimated to cost P100,000, lasts 8 years and have a P10,000 salvage
value. The annual gross income is expected to average P24,000, and annual expenses,
excluding depreciation will total P6,000. If capital is earning 10% before income tax,
determine if this is a desirable investment using A.) Rate of Return Method and B.)
Annual Cost or Worth Method.
II. Gradients (Shows solutions manually):
2.) The year-end operating and maintenance costs of a certain machine are estimated
to be P12,000 the first year and to increase by P2,500 each year during its 4-year life. If
capital is worth 12%, determine the equivalent uniform year-end costs.
3.) Annual maintenance costs for an equipment are P1,500 this year and are estimated
to increase 10% each year every year. What is the present worth of maintenance cost
for six years if i = 12%
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