It costs a plant P2000 a day caused by a shutdown of its equipment. Past records show an average of 3 days of shutdown each year. To avoid shutdowns, it is proposed to purchase a standby machine for P25000 which is expected to have a service life of 12 years with a 5,000 salvage value at the end of this time. Annual maintenance and operation for 3 days would cost P1200. Would it pay to buy the standby machine if the minimum required rate of return is 15%?

Answer rating: 100% (QA)

To determine whether it is financially beneficial to purchase the standby machine we need to calcula... View the full answer