A firm is considering purchasing equipment that will reduce costs by P 400, 000. The equipment costs P300, 000 and has a salvage value of P50, 000 and a life of 7 years. The annual maintenance cost is P6, 000. While not in use by the firm, the equipment can be rented to others to generate an income of P10, 000 per year. If money can be invested for an 8 percent return, is the firm justified in buying the equipment?

(a) Use the Present Worth Method
(b). Use the Future Worth Method
(c). Use the Annual Worth Method

Answer rating: 100% (QA)

Part a The firm should consider the purchase of equipment only if NPV of equi... View the full answer