ine is fully depreciated but can still be used for five years, that is, through 2022. If replaced, it can be replaced for P50,000 on the replacement date. The machine has a purchase price of P1,000,000. The use of the new machine will result in greater operating efficiency and will cause annual cash savings in operating costs of P320,000 through 2022, the end of its expected useful life. Both machines will have no salvage value at the end of 2022. Apple Corp. requires all investments to earn 10% after-tax rate of return to be accepted. It is subject to 32% income tax rate. The new machine will be depreciated on a straight-line basis over a period of five years, from 2018 to 2022.
At the beginning of 2018, Apple Corp. is considering to replace an old machine.
The old machine is fully
Apple Corp. requires all investments to earn 10% after-tax
Use 3 decimal places for the PV factor.
The new machine’s profitability index is?
- 0.937
- 1.105
- 1.068
- 0.905
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