Determine the annual cash flow net of income tax

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Reference no: EM132755475

The Cap Company is considering the replacement of Machine A with Machine B that will cost P160,000 and will result in annual savings of P40,000 before income taxes because of the expected increase in operating efficiency. Machine B has an estimated useful life of 10 years and salvage of P10,000. Machine A has a book value of P16,000 and a disposal value of P20,000 now.

Straight-Line depreciation is used and the company has an average income tax rate of 35%. The minimum desired rate of return on this investment is 20%. The present value of an ordinary annuity of P1 in arrears for 10 periods at 20% is 4.192. The present value of P1 for 10 periods at 20% is . 0162.

Required:

Problem 1. Determine the net investment.

Problem 2. Determine the annual cash flow net of income tax.

Problem 3. What is the net present value of the investment?

Reference no: EM132755475

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