Valentina Allegra de Fontaine Inc. is considering the purchase of a new machine for use in its production process. The invoice cost of the machine is Php2,000,000 and needs an additional Php700,000 to install. This machine is expected to substantially reduce costs in the following items: Labor costs Php700,000 Materials costs 120,000 However, maintenance costs are expected to jump by Php6,000 per month if the machine is acquired. The machine would also be overhauled at the end of the third year that would cost Php150,000. Its useful life is 5 years, after which it would be sold for its residual value of Php180,000. The old machine can be sold for Php70,000. Valentina Allegra de Fontaine Inc. requires a return of at least 14% on investment. Required: a. Compute the net annual cash inflow from the new machine. b. Compute the net present value of the proposed investment. Assume an income tax rate of 40%, determine the net present value of the proposed investment. C.

Valentina Allegra de Fontaine Inc. is considering the purchase of a new machine for use in its production process. The invoice cost of the machine is Php2,000,000 and needs an additional Php700,000 to install. This machine is expected to substantially reduce costs in the following items: Labor costs Php700,000 Materials costs 120,000 However, maintenance costs are expected to jump by Php6,000 per month if the machine is acquired. The machine would also be overhauled at the end of the third year that would cost Php150,000. Its useful life is 5 years, after which it would be sold for its residual value of Php180,000. The old machine can be sold for Php70,000. Valentina Allegra de Fontaine Inc. requires a return of at least 14% on investment. Required: a. Compute the net annual cash inflow from the new machine. b. Compute the net present value of the proposed investment. Assume an income tax rate of 40%, determine the net present value of the proposed investment. C.

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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Question

Valentina Allegra de Fontaine Inc. is considering the purchase of a new machine for use in its production
process. The invoice cost of the machine is Php2,000,000 and needs an additional Php700,000 to install.
This machine is expected to substantially reduce costs in the following items:
Labor costs
Php700,000
120,000
Materials costs
However, maintenance costs are expected to jump by Php6,000 per month if the machine is acquired.
The machine would also be overhauled at the end of the third year that would cost Php150,000. Its
useful life is 5 years, after which it would be sold for its residual value of Php180,000. The old machine
can be sold for Php70,000. Valentina Allegra de Fontaine Inc. requires a return of at least 14% on
investment.
Required:
a. Compute the net annual cash inflow from the new machine.
b. Compute the net present value of the proposed investment.
c.. Assume an income tax rate of 40%, determine the net present value of the proposed
investment.

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