An engineering consultancy firm makes an economic analysis of two machines that will be purchased. Machine B has an estimated life span of 14 years and would cost P20,000 with an annual maintenance cost of P300. Machine A has an estimated life span of 6 years and would cost P10,000 with an annual maintenance cost is expected to be 20% less with the Machine B. There will be an annual insurance cost that amounts to the 1% of the first cost of the machines. Machine A was a disposable machine while Machine B can be salvaged for P6,000. Based on its annual worth, what should the consultancy firm choose if the minimum attractive rate of return is 8% per annum.

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
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An engineering consultancy firm makes an economic analysis of two machines that will be purchased. Machine B has an estimated life span of 14 years and would cost P20,000 with an annual maintenance cost of P300. Machine A has an estimated life span of 6 years and would cost P10,000 with an annual maintenance cost is expected to be 20% less with the Machine B. There will be an annual insurance cost that amounts to the 1% of the first cost of the machines. Machine A was a disposable machine while Machine B can be salvaged for P6,000. Based on its annual worth, what should the consultancy firm choose if the minimum attractive rate of return is 8% per annum.
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