A certain dock is worth P650,000. The average value of the merchandise in the dock is P500,000. The annual insurance rate on the dock is 1.00% and the goods stored on the dock, 0.90%. A proposal for the installation of a fire sprinkler system is being considered. The system will cost P50,000 and will effect a saving of 50% in both insurance premiums. Annual maintenance cost is estimated to be P1,000 and annual taxes P600 for the sprinkler system. The owners of the dock demand that the investment in such equipment be written off within 10 years. Invested capital can be expected to earn a minimum return of about 17%. Would you advise the installation? Ans. The sprinkler system should not be installed, the rate of return is only 3.23%.