Coney Island Fun Centers, Inc. operates amusement parks. Some of the vending machines in one of its parks provide very little revenue, so the company is considering removing the machines and installing equipment to dispense soft ice cream. The equipment would cost P800,000 and have an eight-year useful life with no salvage value. Incremental annual revenue and costs associated with the sale of ice cream would be as follows: Sales ₱ 1,500,000 Variable expenses 900,000 Contribution margin ₱ 600,000 Fixed expenses: Salaries 270,000 Maintenance 30,000 Depreciation 100,000 Total fixed expenses 400,000 Net operating income ₱ 200,000 Question: The vending machines can be sold for P50,000 scrap value. The company will not purchase equipment unless it has a payback period of three years or less. Does the ice cream dispenser pass this hurdle? 2. Compute the investment required. 3. Compute the payback period (expressed in years).
Coney Island Fun Centers, Inc. operates amusement parks. Some of the vending machines in one of its parks provide very little revenue, so the company is considering removing the machines and installing equipment to dispense soft ice cream. The equipment would cost P800,000 and have an eight-year useful life with no salvage value. Incremental annual revenue and costs associated with the sale of ice cream would be as follows:
|
Sales |
₱ 1,500,000 |
|
Variable expenses |
900,000 |
|
Contribution margin |
₱ 600,000 |
|
Fixed expenses: |
|
|
Salaries |
270,000 |
|
Maintenance |
30,000 |
|
|
100,000 |
|
Total fixed expenses |
400,000 |
|
Net operating income |
₱ 200,000 |
Question: The vending machines can be sold for P50,000 scrap value. The company will not purchase equipment unless it has a payback period of three years or less. Does the ice cream dispenser pass this hurdle?
2. Compute the investment required.
3. Compute the payback period (expressed in years).
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