ABC Company is making a decision whether to invest in a new released equipment for their manufacturing operations. It will cost them P5,000,000 and has a total useful life of 10 years with a salvage value of P500,000. The expected cash flows from year 1 to year 10 is presented in the table below: YEAR EXPEC TED CASHFLOW P1,000,000 | 900,000 800,000 700,000 650,000 640,000 600,000 590,000 500,000 | 450,000 1 4 5 6 8 9 10 This equipment will also save them from maintenance cost of P10,000 and additional 5% on top of the previous maintenance cost yearly. The company expects at least 500 possible scenarios regarding net cash flows to be realized in the span of 10 years (for consistency, use the random numbers from 1 to 500). The discount rate is 12%.
ABC Company is making a decision whether to invest in a new released equipment for their manufacturing operations. It will cost them P5,000,000 and has a total useful life of 10 years with a salvage value of P500,000. The expected cash flows from year 1 to year 10 is presented in the table below: YEAR EXPEC TED CASHFLOW P1,000,000 | 900,000 800,000 700,000 650,000 640,000 600,000 590,000 500,000 | 450,000 1 4 5 6 8 9 10 This equipment will also save them from maintenance cost of P10,000 and additional 5% on top of the previous maintenance cost yearly. The company expects at least 500 possible scenarios regarding net cash flows to be realized in the span of 10 years (for consistency, use the random numbers from 1 to 500). The discount rate is 12%.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Will you invest in the new released equipment, yes or no? Prove it with your solution/s.
Transcribed Image Text:ABC Company is making a decision whether to invest in a new released equipment
for their manufacturing operations. It will cost them P5,000,000 and has a total useful
life of 10 years with a salvage value of P500,000. The expected cash flows from year
1 to year 10 is presented in the table below:
YEAR
EXPECTED CASHFLOW
P1,000,000
900,000
800,000
700,000
650,000
640,000
600,000
590,000
500,000
450,000
1
4
5
6
8.
10
This equipment will also save them from maintenance cost of P10,000 and additional
5% on top of the previous maintenance cost yearly. The company expects at least
500 possible scenarios regarding net cash flows to be realized in the span of 10
years (for consistency, use the random numbers from 1 to 500). The discount rate is
12%.
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