The following data pertain to Sunlight Corp., whose management is planning to purchase an automated tanning equipment. Economic life of equipment – 8 years. Disposal value after 8 years – nil. Estimated net annual cash inflows for each of the 8 years – P81,000. Time-adjusted internal rate of return – 14% Cost of capital of Sunlight Corp – 16% The table of present values of P1 received annually for 8 years has these factors: at 14% = 4.639, at 16% = 4.344 Depreciation is approximately P46,970 annually. Find the required increase in annual cash inflows in order to have the time-adjusted rate of return approximately equal the cost of capital.
The following data pertain to Sunlight Corp., whose management is planning to purchase an automated tanning equipment. Economic life of equipment – 8 years. Disposal value after 8 years – nil. Estimated net annual cash inflows for each of the 8 years – P81,000. Time-adjusted internal rate of return – 14% Cost of capital of Sunlight Corp – 16% The table of present values of P1 received annually for 8 years has these factors: at 14% = 4.639, at 16% = 4.344 Depreciation is approximately P46,970 annually. Find the required increase in annual cash inflows in order to have the time-adjusted rate of return approximately equal the cost of capital.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The following data pertain to Sunlight Corp., whose management is planning to purchase an automated tanning equipment.
- Economic life of equipment – 8 years.
- Disposal value after 8 years – nil.
- Estimated net annual
cash inflows for each of the 8 years – P81,000. - Time-adjusted
internal rate of return – 14% - Cost of capital of Sunlight Corp – 16%
- The table of present values of P1 received annually for 8 years has these factors: at 14% = 4.639, at 16% = 4.344
Depreciation is approximately P46,970 annually.
Find the required increase in annual cash inflows in order to have the time-adjusted rate of return approximately equal the cost of capital.
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