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Compute the payback period

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Reference no: EM133062135

Answer the following problems. Show your solutions.

1. Marcus Company is considering purchasing a new equipment for P450,000. It is expected that the equipment will produce net annual cash flows of P55,000 over its 10-year useful life. Annual depreciation will be P45,000. Compute the payback period.

2. Timo Company, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost P136,000 and have an estimated useful life of 5 years. It will be sold for P70,000 at that time. (Amusement parks need to rotate exhibits to keep people interested). It is expected to increase net annual cash flow by P25,000. Calculate the net present value of the project to the company.

3. Michener Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost P200,000 and has an estimate useful life of 8 years with a zero salvage value. Management estimates that the new bottling machine will provide net annual cash flow of P35,000. Assume a discount rate of 9%. Compute the net present value.

4. Harry Company is considering two different capital expenditure proposals. Project A will cost P395,000, has an expected useful life of 10 years, a salvage value of zero and is expected to increase net annual cash flows by P70,000. Project B will cost P270,000 has an expected useful life of 10 years and salvage value of zero. It is expected to increase net annual cash flows by P50,000. A discount rate of 9% is appropriate for both projects. Compute the net present value of each project. Which project should be accepted?

5. Frost Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the manufacture of new product. The machine will cost P170,000, has an estimated useful life of 7 years , a salvage value of zero and will increase net annual cash flow by P33,740. What is its approximate internal rate of return?

Reference no: EM133062135

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