Step 3 A

Step 3 2nd Comparison: Best Option vs. Type C a. NPV at 5% Calculate Type C Annual Expenses Operating cost = P29, 000 Labor cost = P40,000 Insurance = 3% of P270,000 = P8, 100 Payroll tax = 4% of P270,000 = P10, 800 Total annual expenses = P29,000 + P40,000 + P8, 100 + P10, 800 = P87, 900 Define Cash Flows Year O: Initial cost = P 270,000 Years 1-9: Annual expenses = P 87,900 Year 10: Annual expense + market value = P 87,900 + P75,000 P 12,900 Cash flows: P 270,000, P 87, 900( x9), P 12, 900 Calculate NPV at 5% Formula: NPV = $* an Type C: 9 270, 000 87,900 12,900 NPV = 2 5. S03 (1.05) (1.05)' (1.05)" After summing, NPV = P 902, 697 Explanation: At 5%, Type B still remains better than Type C