Reference no: EM132576740

For P450,000, Roxas Corporation purchased a new machine with an estimated useful life of five years with no salvage value. The machine is expected to produce cash flow from operations, net of 40 percent income taxes, as follows:

First year P160,000

Second year 140,000

Third year 180,000

Fourth year 120,000

Fifth year 100,000

Roxas will use the sum-of-the-years-digits method to depreciate the new machine as follows:

First year P150,000

Second year 120,000

Third year 90,000

Fourth year 60,000

Fifth year 30,000

The present value of 1 for 5 periods at 12 percent is 3.60478. The present values of 1 at 12 percent at end of each period are:

End of:

Period 1 0.8928,

Period 2 - 0.79719,

Period 3 - 0.71178,

Period 4 - 0.63552,

Period 5 - 0.56743

Question 1: Had Roxas used straight-line method of depreciation, what is the difference in net present value provided by the machine at a discount rate of 12 percent?

A. Increase of P9,750

B. Decrease of P24,376

C. Decrease of P9,750

D. Increase of P24,376