NE-YO Corporation is currently manufacturing laptops using traditional technology. With the improving economic decisions and increasing demands of the market, it pushed through with the purchase and operation of a more sophisticated machine. The net investment of decision is P276,200 which includes P247,500 capitalizable cost of machine and P50,000 of additional net working capital. The machine has a useful life of 5 years and a salvage value of P27,500. The annual operating cash inflow and outflow from this decision is P140,000 and P60,000 respectively. Assume a tax rate of 40% and a cost of capital of 10%. Compute the following: (1) After-tax net annual cashflow

NE-YO Corporation is currently manufacturing laptops using traditional technology. With the improving economic decisions and increasing demands of the market, it pushed through with the purchase and operation of a more sophisticated machine. The net investment of decision is P276,200 which includes P247,500 capitalizable cost of machine and P50,000 of additional net working capital. The machine has a useful life of 5 years and a salvage value of P27,500. The annual operating cash inflow and outflow from this decision is P140,000 and P60,000 respectively. Assume a tax rate of 40% and a cost of capital of 10%. Compute the following: (1) After-tax net annual cashflow

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 8P

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Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
NE-YO Corporation is currently manufacturing laptops using traditional technology. With the improving economic decisions and increasing demands of the market, it pushed through with the purchase and operation of a more sophisticated machine. The net investment of decision is P276,200 which includes P247,500 capitalizable cost of machine and P50,000 of additional net working capital. The machine has a useful life of 5 years and a salvage value of P27,500. The annual operating cash inflow and outflow from this decision is P140,000 and P60,000 respectively. Assume a tax rate of 40% and a cost of capital of 10%. Compute the following: A. After-tax net annual cashflow B. Return of capital at the end of the investment C. Net present value of the investment decision D. Profitability index of the investment decision
NE-YO Corporation is currently manufacturing laptops using traditional technology. With the improving economic decisions and increasing demands of the market, it pushed through with the purchase and operation of a more sophisticated machine. The net investment of decision is P276,200 which includes P247,500 capitalizable cost of machine and P50,000 of additional net working capital. The machine has a useful life of 5 years and a salvage value of P27,500. The annual operating cash inflow and outflow from this decision is P140,000 and P60,000 respectively. Assume a tax rate of 40% and a cost of capital of 10%. Compute the following: A. After-tax net annual cashflow B. Return of capital at the end of the investment
NE-YO Corporation is currently manufacturing laptops using traditional technology. With the improving economic decisions and increasing demands of the market, it pushed through with the purchase and operation of a more sophisticated machine. The net investment of decision is P276,200 which includes P247,500 capitalizable cost of machine and P50,000 of additional net working capital. The machine has a useful life of 5 years and a salvage value of P27,500. The annual operating cash inflow and outflow from this decision is P140,000 and P60,000 respectively. Assume a tax rate of 40% and a cost of capital of 10%. Compute the following: A. Net present value of the investment decision B. Profitability index of the investment decision
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