Kenny Day, manager of Day Laboratory, is investigating the possibility of acquiring some new test equipment. The equipment requires an initial outlay of P300,000. To raise the capital, Kenny will sell stock valued at P200,000 and borrow P100,000. Kenny figures that his weighted average cost of capital is 10%. This weighted cost of capital is the discount rate that will be used or capital investment decisions. Kenny estimates that the new test equipment will produce a cash inflow of P50,000 per year. Kenny expects the equipment to last for 20 years. Required: 1. Compute the NVP of the test equipment. 2. Compute the IRR of the test equipment. 3. Compute the Profitability Index.
Kenny Day, manager of Day Laboratory, is investigating the possibility of acquiring some new test equipment. The equipment requires an initial outlay of P300,000. To raise the capital, Kenny will sell stock valued at P200,000 and borrow P100,000. Kenny figures that his weighted average cost of capital is 10%. This weighted cost of capital is the discount rate that will be used or capital investment decisions. Kenny estimates that the new test equipment will produce a cash inflow of P50,000 per year. Kenny expects the equipment to last for 20 years. Required: 1. Compute the NVP of the test equipment. 2. Compute the IRR of the test equipment. 3. Compute the Profitability Index.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Kenny Day, manager of Day Laboratory, is investigating the possibility of acquiring some new test equipment. The equipment requires an initial outlay of P300,000. To raise the capital, Kenny will sell stock valued at P200,000 and borrow P100,000. Kenny figures that his weighted average cost of capital is 10%. This weighted cost of capital is the discount rate that will be used or capital investment decisions.
Kenny estimates that the new test equipment will produce a
Required:
1. Compute the NVP of the test equipment.
2. Compute the
3. Compute the Profitability Index.
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