Reference no: EM132832862
Question - Ponciano Corporation is interested in purchasing a state-of-the-art widget machine for its manufacturing plant. The new machine has been designed to basically eliminate all errors and defects in the widget-making production process. The new machine will cost P150,000, and have a salvage value of P70,000 at the end of its seven-year useful life. Ponciano has determined that cash inflows for years 1 through 7 will be as follows: P32,000; P57,000; P15,000; P28,000; P16,000; P10,000, and P15,000, respectively. Maintenance will be required in years 3 and 6 at P10,000 and P7,000 respectively. Ponciano uses a discount rate of 11 percent and wants projects to have a payback period of no longer than five years.
Required -
1) Compute the net present value of the new machine.
2) Compute the firm's profitability index.
3) Compute the payback period.
4) Evaluate this investment proposal for XYZ Co.
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