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6-5 A firm is charged P150 per ton for hauling its raw materials by a trucking company. Forty tons perday are hauled for 300 days a year. It is desired to install a railway system which would bring down the cost of hauling to P6.60 per ton. Maintenance cost of this is P12,000 per month. Tax is 1%. Average rate if earning is 20%.a. If the company has the cash necessary for the installation, would you recommend the change?b. If the company has to float P5,000,000 worth of noncallable bonds at 15% that will mature in 10 years to have the capital for the project, would you recommend the change? Solution:
6-5 A food processing plant consumed 600,000 kW of electric energy annually and pays an average of P2.00 per kWh. A study is being made to generate its own power to supply the plant the energy required, and that the power plant installed would cost P2,000,000. Annual operation and maintenance,P800,000. Other expenses P100,000 per year. Life of power plant is 15 years; salvage value at the end of life is P200,000; annual taxes and insurances, 6% of first cost; and rate of interest is 15%. Using the sinking fund method for depreciation, determine if the power plant is justifiable.