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Weighted cost of capital

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PROBLEM 1 Top Growth Farms, a farming cooperative, is considering to replace its old tractor with original cost of P250, 000 and accumulated depreciation of P228250 which can be sold at P26,750, and purchasing a new tractor for P500,000. The new machine has a 10- year life and an estimated salvage value of P27,500. Delivery costs and set-up charges will be P12,100 and P400, respectively. Top Growth uses straight-line depreciation. Top Growth estimates that the tractor will be used ?ve times a week with the average charge to the individual farmers of P400. Gas is P25 for each use of the tractor. The company wants to use the weighted cost of capital of 10% in their decision.

Instructions:

For the new tractor, compute the: (a) Net Investment (5) Net cash inflow

Reference no: EM133275944

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