The MGC Company has a contract with a hauler to transport its Naphtha requirements of 3,600,000 liters per year from a refinery in Batangas to its site in Paco at a cost of P1.05 per liter. It is proposed that the company buys a tanker with a capacity of 18,000 liters to service its requirements at a first cost of P8, 000,000 life is 6 years and has a salvage value of P800, 000. Other expenses are as follows: (a) Diesel fuel at P7.95 per liter and the tanker consumers 120 liter per round trip from Paco to Batangas and back (b) Lubricating oil and servicing is P3, 200 per month (c) Labor including overtime and fringe benefits for one driver and one helper is P21, 000 per month (d) Annual taxes and insurance, 5% of first cost (e) General maintenance per year is P40, 000 (f) Tires cost P32, 000 per set and will be renewed every 150 round trips. What should the MGC Company do if a 15% interest rate on investment is included in the analysis? Use ROR method.

The MGC Company has a contract with a hauler to transport its Naphtha requirements of 3,600,000 liters per year from a refinery in Batangas to its site in Paco at a cost of P1.05 per liter. It is proposed that the company buys a tanker with a capacity of 18,000 liters to service its requirements at a first cost of P8, 000,000 life is 6 years and has a salvage value of P800, 000. Other expenses are as follows: (a) Diesel fuel at P7.95 per liter and the tanker consumers 120 liter per round trip from Paco to Batangas and back (b) Lubricating oil and servicing is P3, 200 per month (c) Labor including overtime and fringe benefits for one driver and one helper is P21, 000 per month (d) Annual taxes and insurance, 5% of first cost (e) General maintenance per year is P40, 000 (f) Tires cost P32, 000 per set and will be renewed every 150 round trips. What should the MGC Company do if a 15% interest rate on investment is included in the analysis? Use ROR method.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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The MGC Company has a contract with a hauler to transport its naptha requirements of 3,600,000 liter per year from a refinery in Batangas to its site in Paco at a cost of P1.05 per liter. It is proposed that the company buys a tanker with a capacity of 18,000 liters to service its requirements at a first cost of P 8,000,000 life is 6 years and a salvage value of P 800,000. Other expenses are as follows: a.) Diesel fuel at P7.95 per liter and the tanker consumers 120 liter per round trip from Paco to Batangas and back.b.) Lubricating oil servicing is P3,200 per month.c.) Labor including overtime and fringe benefits for one driver and one helper is P21,000 per month.d.) Annual taxes and insurance. 5% of first cost.e.) General maintenance per year is P40,000f.) Tires cost P 32,000 per set and will be renewed every 150 round trips. What should the MGC Company do if a 5% interest rate on investment is included in the analysis?
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