Silver Company has the opportunity to introduce a new product, Silver expects the product to sell for P60 and to have per unit variable costs of P35 and annual cash fixed costs of P4,000,000. Expected annual sales volume is 275,000 units. The equipment needed to bring out the new product costs P6,000,000, has a four-year life and no salvage value, and would be depreciated on a straight-line basis. Silver's cost of capital is 14% and its income tax rate is 40%. The present values of 1 at 14 percent for 4 periods are: End of: Yr. 1 - 0.877; Yr. 2 - 0.770; Yr. 3 - 0.675; Yr. 4 - 0.520. The present of annuity of 1 at 14 percent for 4 periods is 2.914. What is the payback period? О 2.58 years 2.93 years 3.48 years 2.09 years

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
Silver Company has the opportunity to introduce a new product, Silver expects the
product to sell for P60 and to have per unit variable costs of P35 and annual cash fixed
costs of P4,000,000. Expected annual sales volume is 275,000 units. The equipment
needed to bring out the new product costs P6,000,000, has a four-year life and no salvage
value, and would be depreciated on a straight-line basis. Silver's cost of capital is 14% and
its income tax rate is 40%.
The present values of 1 at 14 percent for 4 periods are: End of: Yr. 1 - 0.877; Yr. 2 -
0.770; Yr. 3 - 0.675; Yr. 4 - 0.520. The present of annuity of 1 at 14 percent for 4 periods
is 2.914.
What is the payback period?
2.58 years
2.93 years
3.48 years
2.09 years
Transcribed Image Text:Silver Company has the opportunity to introduce a new product, Silver expects the product to sell for P60 and to have per unit variable costs of P35 and annual cash fixed costs of P4,000,000. Expected annual sales volume is 275,000 units. The equipment needed to bring out the new product costs P6,000,000, has a four-year life and no salvage value, and would be depreciated on a straight-line basis. Silver's cost of capital is 14% and its income tax rate is 40%. The present values of 1 at 14 percent for 4 periods are: End of: Yr. 1 - 0.877; Yr. 2 - 0.770; Yr. 3 - 0.675; Yr. 4 - 0.520. The present of annuity of 1 at 14 percent for 4 periods is 2.914. What is the payback period? 2.58 years 2.93 years 3.48 years 2.09 years
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Asset replacement decision
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education