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What is the annual cash flow net of tax

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Reference no: EM133004720

ABC Company is considering replacement of Machine A with Machine B that will cost P150,000 and will result in annual savings of P40,000 before income taxes. Machine B has an estimated useful life of 10 years and salvage value 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 tax rate is 35%. The minimum desired rate of return on this investment is 20%. The present value of an ordinary annuity of 1 in arrears for 10 periods at 20% is 4.192. The present value of 1 for 10 periods at 20% is 0.162.

Problem 1: What is the net investment?

Problem 2: What is the net present value?

Problem 3: What is the annual cash flow net of tax?

Reference no: EM133004720

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