In order to increase production capacity, Global Industries is considering replacement an existing production machine with a new technologically improved machine effective January 1. The following information is being considered by Global Industries: The new machine would purchased for P160,000 in cash. Shipping, installation, and testing would cost additional P30,000 • The new machine is expected to increase annual sales by 20,000 units at a sales price of P40 per unit. Incremental operating costs include P30 per unit in variable costs and total fixed costs of P40,000 per year. • The investment in the new machine will require an immediate increase in working capital of P35,000. This cash outflow will be recovered at the end of year 5 • Global uses straight-line depreciation for financial reporting and tax reporting purposes. The new machine has an estimated useful life of 5 years and zero salvage value • Global is subject to a 40% corporate income tax rate Global uses the net present value method to analyze investments and will employ the following factors and rates: Present Value of an Present Value of P1 Ordinary Annuity of P1 Period At 10% At 10% 1 0.909 0.909 0.826 1.736 0.751 2.487 0.683 3.170 5 0.621 3.791 The overall discounted cash flow impact of Global Industries' working capital investment for the new production machine would be O a. P(7,959) O b. P(10,080) O c. P(13,265) O d. P(35,000) N34 in 2
In order to increase production capacity, Global Industries is considering replacement an existing production machine with a new technologically improved machine effective January 1. The following information is being considered by Global Industries: The new machine would purchased for P160,000 in cash. Shipping, installation, and testing would cost additional P30,000 • The new machine is expected to increase annual sales by 20,000 units at a sales price of P40 per unit. Incremental operating costs include P30 per unit in variable costs and total fixed costs of P40,000 per year. • The investment in the new machine will require an immediate increase in working capital of P35,000. This cash outflow will be recovered at the end of year 5 • Global uses straight-line depreciation for financial reporting and tax reporting purposes. The new machine has an estimated useful life of 5 years and zero salvage value • Global is subject to a 40% corporate income tax rate Global uses the net present value method to analyze investments and will employ the following factors and rates: Present Value of an Present Value of P1 Ordinary Annuity of P1 Period At 10% At 10% 1 0.909 0.909 0.826 1.736 0.751 2.487 0.683 3.170 5 0.621 3.791 The overall discounted cash flow impact of Global Industries' working capital investment for the new production machine would be O a. P(7,959) O b. P(10,080) O c. P(13,265) O d. P(35,000) N34 in 2
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 5MAD: Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to...
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning