The Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of a special equipment for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: 1. How much is the after tax cash flows of Project 1? 2. How much is the net benefit of investing in Project 2? Project 1 ( Investment in a new product)P 750,000325,00030,000RevenuesExpected annual cash expensesDepreciationIncome tax – 30%Required investment outlay, P1,200,000. The equipment is expected tobe used for 5 years then to be disposed at its estimated salvage value ofP50,000. The income trend is expected to continue for the next 5 years.Project 2 ( Acquisition of a special equipment)Cost of special equipmentExpected cash savingsfrom overhead expensesP 800,000250,000The equipment has an estimated life of 8 years but will be used only for6 years then to be sold at book value.

Project 1 Given that Revenue = 750000 Cash expenses = 325000 Depreciation…

Answered: The Company is considering two…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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The Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of a special equipment for the Materials Handling Department. The projected annual operating revenues and expenses are as follows:

1. How much is the after tax cash flows of Project 1?

2. How much is the net benefit of investing in Project 2?

Project 1 ( Investment in a new product)
P 750,000
325,000
30,000
Revenues
Expected annual cash expenses
Depreciation
Income tax – 30%
Required investment outlay, P1,200,000. The equipment is expected to
be used for 5 years then to be disposed at its estimated salvage value of
P50,000. The income trend is expected to continue for the next 5 years.
Project 2 ( Acquisition of a special equipment)
Cost of special equipment
Expected cash savings
from overhead expenses
P 800,000
250,000
The equipment has an estimated life of 8 years but will be used only for
6 years then to be sold at book value.

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