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Ruby, Inc. is considering on replacing its old machine. machine with a new, high-performing Information in relation to this decision is as follows: Old Machine: Cost, P200,000

Ruby, Inc. is considering on replacing its old machine. machine with a new, high-performing Information in relation to this decision is as follows: Old Machine: Cost, P200,000

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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From the problem below :
1. For capital budgeting purposes, what is the net investment in the new, high-performing machine?
A. P186,400
B. P185,000
C. P169,600
D. P148,000

2. What is the payback period?
A. 4.49 years
B. 5.24 years
C. 5.76 years
D. None from the choices

3. Compute the new, high-performing machine's net present value.
A. P1,200
B. P15,892
C. P28,025
D. P6,729

 

Ruby, Inc. is considering on replacing its old machine with a new, high-performing machine. Information in relation to this decision is as follows: Old Machine: Cost, P200,000 Residual value, P20,000 Useful life, 10 years New Machine: Cost, P280,000 Residual value, P20,000 Useful life, 8 years The old machine was bought 4 years ago and now has a current market value of P100,000. If the new machine will be bought, the company will save P40,000 in cash operating costs but increase in working capital of P5,000 is required. If the new machine is not purchased, repair of the old unit will have to be made at an estimated cost of P10,000. Both machines are depreciated under straight-line method. The tax rate and cost of capital is 30% and 12%, respectively.
Transcribed Image Text:Ruby, Inc. is considering on replacing its old machine with a new, high-performing machine. Information in relation to this decision is as follows: Old Machine: Cost, P200,000 Residual value, P20,000 Useful life, 10 years New Machine: Cost, P280,000 Residual value, P20,000 Useful life, 8 years The old machine was bought 4 years ago and now has a current market value of P100,000. If the new machine will be bought, the company will save P40,000 in cash operating costs but increase in working capital of P5,000 is required. If the new machine is not purchased, repair of the old unit will have to be made at an estimated cost of P10,000. Both machines are depreciated under straight-line method. The tax rate and cost of capital is 30% and 12%, respectively.
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