Reference no: EM133089205

PROBLEM 1 - XYZ Company is looking to invest in some new machinery to replace its current malfunctioning one. The new machine, which costs P420,000, would increase annual revenue by P200,000 and annual cash expenses by P50,000. The machine is estimated to have a useful life of 12 years and P30,000 salvage value. Compute for the following:

A. Payback period in years

B. Payback period reciprocal

C. Accounting rate of return on initial investment

D. Accounting rate of return on average investment.

PROBLEM 2 - NE-YO Corporation is currently manufacturing laptops using traditional technology. With the improving economic decisions and increasing demands of the market, it pushed through with the purchase and operation of a more sophisticated machine. The net investment of decision is P276,200 which includes P247,500 capitalizable cost of machine and P50,000 of additional net working capital. The machine has a useful life of 5 years and a salvage value of P27,500. The annual operating cash inflow and outflow from this decision is P140,000 and P60,000 respectively. Assume a tax rate of 40% and a cost of capital of 10%.

Compute the following:

A. After-tax net annual cash flow

B. Return of capital at the end of the investment

C. Net present value of the investment decision

D. Profitability index of the investment decision.

PROBLEM 3 - ABC Corporation made a net investment of P500,000 in a vending machine. Over the five years of its useful life, the machine is expected to have net cashflows of P250,000, P200,000, P80,000, P75,000 and P50,000. Assuming the incremental cost of capital was 9%, compute the following:

A. Discounted payback period in years of the vending machine

B. Internal rate of return of the investment.