Solution-What the purchase of the new equipment

What the purchase of the new equipment

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Question - The King of Hearts, Inc. is considering to replace its old equipment with a more efficient one. The old equipment was purchased two years ago for P720,000. Though the old equipment will be used for eight years, the company elected to depreciate it over 6 years. If the company would keep and use the old equipment during its remaining useful life, the annual cash operating expenses will be P640,000. The old equipment can be sold for P380,000.

The new equipment costs the company P900,000. The new equipment will be depreciated over its useful life of six years without any salvage value. The use of the new equipment will decrease the company's cash operating expenses by P175,000, The company is consistently using straight-line method of depreciation with 32% income tax. The company uses 16% cost of capital. What the purchase of the new equipment will result to net present value?

Reference no: EM132919980

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What the purchase of the new equipment

Reference no: EM132919980

Reference no: EM132919980

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