Solution-Compute the net cash outlay if the new machine is

Compute the net cash outlay if the new machine is purchased

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Reference no: EM132889436

The management of Beta Metals Corp is considering a new machine. The new machine is more efficient than the one currently in use and would save the company P600,000 annually because of greater operating speed. To keep the old machine operating at the present level of efficiency requires immediate repairs costing P500,000. The repair cost is tax deductible this year. Annual depreciation on the old machine, which is expected to last ten years is P180,000 with no salvage value. The new machine cost P3,730,000, including freight and installation costs. It has an expected useful life of ten years and no expected scrap value, using straight line method. The old machine has a book value of P1,800,000 and a market value of P1,200,000. Tax rate is estimated at 40%.

Required:

Problem 1) Compute the net cash outlay if the new machine is purchased.

Problem 2) Evaluate the proposal assuming a minimum required rate of return of 10%. Justify. PVF 10% FOR 10 years = 6.145

Reference no: EM132889436

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Compute the net cash outlay if the new machine is purchased

Reference no: EM132889436

Reference no: EM132889436

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