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| Hermo Company has just completed a hydro-electric plant at a cost of $21,000, The plant will provide the company’s power needs for the next 20 years. Hermo will use only 60% of the power output annually. At this level of capacity, Hermo’s annual operating costs will amount to $1,800,000, of which 80% are fixed. Quigley Company currently purchases its power from MP Electric at an annual cost of $1,200, Hermo could supply this power, thus increasing output of the plant to 90% of capacity. This would reduce the estimated life of the plant to 14 years.The maximum amount Quigley would be willing to pay Hermo annually for the power is The maximum amount Quigley would be willing to pay Hermo annually for the power is A. $600,000 B. $1,050,000 C. $1,200,000 D. Some amount other than those given. |