Kapekape Corporation produces and sells coffee. It currently roasts coffee using a manual operation but is considering the purchase of machinery to automate its operations. The machine will cost P420,000 and has a useful life of 12 years. The expected annual revenue (50,000 jars) is P210,000 whether the company uses the manual or the automated operation. Under the current set up, variable costs amount to P135,000 while variable costs under the automated operation is expected to be P42,000. Annual fixed costs in the manual operations is expected to be at P30,000 but this will increase by P42,000 if the operation is automated. The company's discount rate is 12 and it uses the straight-line method of depreciation. What will be the effect on the net present value of the decision to automate operations if 60,000 jars instead of 50,000 jars are expected to be sold each year? (Assume no change in cost structure or selling price.) a. no effect b. P52,030 decrease c. P63,179 increase d. P115,208 increase
Kapekape Corporation produces and sells coffee. It currently roasts coffee using a manual operation but is considering the purchase of machinery to automate its operations. The machine will cost P420,000 and has a useful life of 12 years. The expected annual revenue (50,000 jars) is P210,000 whether the company uses the manual or the automated operation. Under the current set up, variable costs amount to P135,000 while variable costs under the automated operation is expected to be P42,000. Annual fixed costs in the manual operations is expected to be at P30,000 but this will increase by P42,000 if the operation is automated. The company's discount rate is 12 and it uses the straight-line method of
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