stment decision should not be based only on payback period. Currently, the company is considering to purchase a new machine that will provide annual cash flow 00,000 in the first year of use, P1,200,000 in its second year of use, P1,000,000 in the third year, and P740,000 in each year of the remaining of 8 years life of the ect. The machine cost P5,600,000 and could be sold for P2,500,000 after its useful life. The company's cost of capital is 12%. he investment analyst of the company which of the Payback Method and the Present Value Method would you recommend to become the basis for pursuing the ect? Explain your answers. Support your recommendation with computed values.

stment decision should not be based only on payback period. Currently, the company is considering to purchase a new machine that will provide annual cash flow 00,000 in the first year of use, P1,200,000 in its second year of use, P1,000,000 in the third year, and P740,000 in each year of the remaining of 8 years life of the ect. The machine cost P5,600,000 and could be sold for P2,500,000 after its useful life. The company's cost of capital is 12%. he investment analyst of the company which of the Payback Method and the Present Value Method would you recommend to become the basis for pursuing the ect? Explain your answers. Support your recommendation with computed values.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Normally, JC Corporation pursue a project only if the payback period is not more than 50% of the project's useful life. However the accounting manager suggested that
investment decision should not be based only on payback period. Currently, the company is considering to purchase a new machine that will provide annual cash flow of
P1,500,000 in the first year of use, P1,200,000 in its second year of use, P1,000,000 in the third year, and P740,000 in each year of the remaining of 8 years life of the
project. The machine cost P5,600,000 and could be sold for P2,500,000 after its useful life. The company's cost of capital is 12%.
As the investment analyst of the company which of the Payback Method and the Present Value Method would you recommend to become the basis for pursuing the
project? Explain your answers. Support your recommendation with computed values.

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