Based on the information given in the table, find the :i) Profitability index Computation of Cash flow after taxParticularsold Machine Machine TKCMachine RMR(RM)(RM)(RM)Annual Revenue500000600000675000Annual Cost of defects800007600077600Annual Operating cost500005125052000Annual Maintenance cost ##400003940040800Net Amount330000433350504600Less: Depreciation4260032400Earning before Tax (EBT)390750472200Таx @ 40%156300188880Earning after Tax (EAT)234450283320Cash flow after tax= EAT+ Depreciation277050315720## Given : Quarterly Maintenance CostRM 10000So, Annual Maintenance CostRM 10000 x4RM 40000 Calculation of payback periodCash Flow fromCash Flow fromYearParticularsMachine RMRMachine TKC (RM)(RM)Cost-200000-150000Cash Flow Year 12770503157202Cash Flow Year 2 277050315720Cash Flow Year 3 2770503157204Cash Flow Year 4 277050315720Cash Flow Year 5 287050323720200000/277050 x 150000/315720 xPayback period12 months12 monthsPayback period8.6626962645.701254276Payback period9 months6 monthsNote::Payback period= Initial investment / Cash flows (same everyyear)Cash flow in year 5 also includes salvage value

The profitability index (PI) is one of the capital budgeting tools that help to evaluate whether the…

Answered: i) Profitability index

Business

Accounting

i) Profitability index

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Based on the information given in the table, find the :

i) Profitability index

Computation of Cash flow after tax
Particulars
old Machine Machine TKC
Machine RMR
(RM)
(RM)
(RM)
Annual Revenue
500000
600000
675000
Annual Cost of defects
80000
76000
77600
Annual Operating cost
50000
51250
52000
Annual Maintenance cost ##
40000
39400
40800
Net Amount
330000
433350
504600
Less: Depreciation
42600
32400
Earning before Tax (EBT)
390750
472200
Таx @ 40%
156300
188880
Earning after Tax (EAT)
234450
283320
Cash flow after tax= EAT+ Depreciation
277050
315720
## Given : Quarterly Maintenance Cost
RM 10000
So, Annual Maintenance Cost
RM 10000 x4
RM 40000

Calculation of payback period
Cash Flow from
Cash Flow from
Year
Particulars
Machine RMR
Machine TKC (RM)
(RM)
Cost
-200000
-150000
Cash Flow Year 1
277050
315720
2
Cash Flow Year 2 277050
315720
Cash Flow Year 3 277050
315720
4
Cash Flow Year 4 277050
315720
Cash Flow Year 5 287050
323720
200000/277050 x 150000/315720 x
Payback period
12 months
12 months
Payback period
8.662696264
5.701254276
Payback period
9 months
6 months
Note::
Payback period= Initial investment / Cash flows (same every
year)
Cash flow in year 5 also includes salvage value

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