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Sun-Light Manufacturing Corporation needs to overhaul its drill press or buy a new one. The facts have been gathered, and they are as follows:
2. Sun-Light Manufacturing Corporation needs to overhaul its drill press or buy a new one.
The facts have been gathered, and they are as follows:
Current Machine New Machine
Purchase Price, New P80,000 P100,000
Current book value 30,000
Overhaul needed now 40,000
Annual cash operating costs 70,000 40,000
Current salvage value 20,000
Salvage value in five years 5,000 20,000
Required:
Which alternative is the most desirable with a current required rate of return of 20%? Show
computations to support your recommendation, and assume no taxes.