1. An existing machine of a company requires P20,000 for O&M (Operations and Maintenance). If the...

1. An existing machine of a company requires P20,000 for O&M (Operations and Maintenance). If the company decides to sell the machine now, it can be sold for P15,000. If the company decides to use it, the machine will last for 10 more years but the salvage value at that time will be zero. Another plan is to overhaul the existing machine at a cost of P10,000 which is expected to reduce the annual O&M to P15,000. Its economic life will also be extended to 10 years but with a salvage value of P5,000. Alternatively, a new machine can be purchased for P50,000 which is expected to reduce annual costs for O&M to P10,000 for a period of 10 years, at which time the salvage value is expected to be P10,000. If money is worth 12% to the company, which alternative would you recommend? Using Annual Cost Method?

Expert Solution

Ally Wells answered 11 months ago

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