Comparison of Alternatives
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COMPARISON OF ALTERNATIVES 1. The owner of a 10 year old asphalt plant is considering two alternatives: a.) To continue with the old equipment for possibly 5 years more, at which time there will be no salvage value. Its present value is P400,000. Annual repairs cost P100,000 and annual output is 100,000 tons. Operating cost is P200 per ton. b.) To sell the old equipment for salvage value now and purchase new equipment at a cost of P5M. it has a capacity of 120,000 tons per year and has an estimated life of 20 years and will be scrapped at the end of its life. Operating costs will be about P160 per ton and annual repairs about P50,000. If the rate of interest is 6%, which of this alternatives should be selected? Use : RORAI and AWC methods. 2. An industrial firm received an offer for the supply of two electric motors which are being considered to power an industrial hoist. Each motor is capable of providing 100hp. Other pertinent data for each motor are as follows: Motor A Motor B Motor C Investment P250,000 P320,000 P400,000 Efficiency 84% 88% 90% Maintenance per year P40,000 P60,000 P 70,000 Life, years 10 10 10 Money is worth 20%. If the expected usage of the hoist is 700 hours per year, a.) what should be the cost of electric power before Motor A is favored over Motor B. b.) using AWC which motor must be purchased if energy rate is P8.00/kWhr?
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Transcript of Comparison of Alternatives
COMPARISON OF ALTERNATIVES1. The owner of a 10 year old asphalt plant is considering two alternatives:a.) To continue with the old equipment for possibly 5 years more, at which time therewill be no salvage value. ts present value is !"00,000. #nnual repairs cost !100,000 and annual output is 100,000 tons. $perating cost is !%00 per ton.b.) To sell the old equipment for salvage value now and purchase new equipment at a cost of !5&. it has a capacity of 1%0,000 tons per year and has an estimated life of %0 years and will be scrapped at the end of its life. $perating costs will be about !1'0 per ton and annual repairs about !50,000.f the rate of interest is '(, which of this alternatives should be selected)*se : +$+# and #,- methods.%. #n industrial .rm received an o/er for the supply of two electric motors which are being considered to power an industrial hoist. 0ach motor is capable of providing 100hp. $ther pertinent data for each motor are as follows:&otor # &otor 1 &otor -nvestment !%50,000 !2%0,000 !"00,00003ciency 4"( 44( 50(&aintenance per year !"0,000 !'0,000 ! 60,0007ife, years 10 10 10&oney is worth %0(. f the e8pected usage of the hoist is 600 hours per year, a.) what should be the cost of electric power before &otor # is favored over &otor 1.b.)using #,- which motor must be purchased if energy rate is !4.009:,hr)2. # company has a machine for which it spends !140,000 a year for operation and maintenance. f sold now it can bring !1%0,000. f it is continued in service it is e8pected to last for 10 more years, at the time its salvage value will be ;ero.#nother plan is to overhaul the machine at a cost of !40,000, which is e8pected to reduce annual disbursements to !150,000. ts economic life is e8pected to be also 10 years with a !%0,000 salvage value.#lternatively, a new machine can be purchased for !"50,000 which is e8pected to reduce annual cost of operation and maintenance to !100,000 for a life of 10 years, at which time the salvage value is e8pected to be !100,000. f money is worth 15( to the company, which alternative would you recommend) ".# pro
