J Corp. is considering the purchase of a new machine that will cost P320,000. It has an estimated useful life of 3 years. Assume that 30% of the depreciable base will be depreciated in the first year, 40% in the second year, and 30% in the third year. It has a resale value of P20,000 at the end of its economic life. Savings are expected from the use of machine estimated at P170,000 annually. The company has an effective tax rate of 40%. It uses 16% as hurdle rate in evaluating capital projects. Should the company proceed with the P320,000 capital investment? (D) Year Present Value of P1 Present Value of an Ordinary Annuity of P1 1 0.862 0.862 2 0.743 1.605 3 0.641 2.246 a. Yes, due to NPV of P6,556. c. Yes, due to NPV of P61,820 b. Yes, due to NPV of P11,684. d. No, due to negative NPV of P1,136
JJ Corp. is considering the purchase of a new machine that will cost P320,000. It has an estimated useful life of 3 years. Assume that 30% of the
Should the company proceed with the P320,000 capital investment? (D)
Year
1 0.862 0.862
2 0.743 1.605
3 0.641 2.246
a. Yes, due to
b. Yes, due to NPV of P11,684. d. No, due to negative NPV of P1,136
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