A firm is planning to purchase a new machine costing ₱2,800,000 with freight and installation costs amounting to 135,000. The old unit to be traded-in will be given a trade-in allowance of ₱260,000. Other assets that are to be retired as a result of the acquisition of the new machine can be salvaged and sold for ₱52,000. The loss on the retirement of these assets is ₱50,000 will reduce taxes by ₱20,000 which is based on a tax rate of 40%. If the new machine is not purchased, extensive repairs on the old machine will have to be made at an estimated cost of ₱400,000. This cost can be avoided by purchasing the new machine. Additional gross working capital of ₱350,000 will be needed to support operations planned with the new machine. The net cost of investment would be?
A firm is planning to purchase a new machine costing ₱2,800,000 with freight and installation costs amounting to 135,000. The old unit to be traded-in will be given a trade-in allowance of ₱260,000. Other assets that are to be retired as a result of the acquisition of the new machine can be salvaged and sold for ₱52,000. The loss on the retirement of these assets is ₱50,000 will reduce taxes by ₱20,000 which is based on a tax rate of 40%. If the new machine is not purchased, extensive repairs on the old machine will have to be made at an estimated cost of ₱400,000. This cost can be avoided by purchasing the new machine. Additional gross working capital of ₱350,000 will be needed to support operations planned with the new machine. The net cost of investment would be?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A firm is planning to purchase a new machine costing ₱2,800,000 with freight and installation costs amounting to 135,000. The old unit to be traded-in will be given a trade-in allowance of ₱260,000. Other assets that are to be retired as a result of the acquisition of the new machine can be salvaged and sold for ₱52,000. The loss on the retirement of these assets is ₱50,000 will reduce taxes by ₱20,000 which is based on a tax rate of 40%. If the new machine is not purchased, extensive repairs on the old machine will have to be made at an estimated cost of ₱400,000. This cost can be avoided by purchasing the new machine. Additional gross working capital of ₱350,000 will be needed to support operations planned with the new machine. The net cost of investment would be?
a. ₱ 2,935,000
b. ₱ 2,463,000
c. ₱ 2,623,000
d. ₱ 2,923,000
e. ₱ 2,973,000
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