In building their plant, the officers of the International Leather Company had the choice between alternatives: One alternative is to build in Metro Manila where the plant would cost P3,000,000. Labor would cost annually P150,000 and annual overhead P60,000. Taxes and insurance would total 5% of the first cost of the plant. The second alternative would be to build in Bulacan costing P3,250,000. Labor would cost P120,000 annually and overhead would be P70,000. Taxes and insurance would be 3% of the first cost. The cost of raw materials would be the same in either plant. If capital must be recovered within 10 years and money is worth at least 20%, which site should the officers of the company choose. Use Equivalent Uniform Annual Cost Method. Draw Cash Flow Diagram.
In building their plant, the officers of the International Leather Company had the choice between alternatives:
One alternative is to build in Metro Manila where the plant would cost P3,000,000. Labor would cost annually P150,000 and annual overhead P60,000. Taxes and insurance would total 5% of the first cost of the plant.
The second alternative would be to build in Bulacan costing P3,250,000. Labor would cost P120,000 annually and overhead would be P70,000. Taxes and insurance would be 3% of the first cost. The cost of raw materials would be the same in either plant. If capital must be recovered within 10 years and money is worth at least 20%, which site should the officers of the company choose. Use Equivalent Uniform Annual Cost Method. Draw Cash Flow Diagram.
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