Rowell Corporation, a small, diversified manufacturer of motorbike components, is trying to determine the initial investment required to replace an old machine with a new, more sophisticated model. The proposed machine's purchase price is P380,000, and an additional P20,000 will be necessary to install it. It will be depreciated within five years using the modified accelerated cost recovery system. The present (old) machine was purchased 3 years ago at a cost of P240,000 was being depreciated under modified accelerated cost recovery system for 5-year period. The firm has found a buyer willing to pay P280,000 for the present machine and to remove it at the buyer's expense. The firm expects that a P35,000 increase in current assets and an P18,000 increase in current liabilities will accompany the replacement; these changes will result in a P17,000 (P35,000 - P18,000) increase in net working capital. The firm pays taxes at a rate of 40%. Note: The book value of the present machine can be found by using the depreciation percentages of 20%, 32%, and 19% for years 1, 2, and 3, respectively. Task 2. Show your computation to get the net investment cost. Note: Correct amount of Net Investment Cost is P221,160.
Rowell Corporation, a small, diversified manufacturer of motorbike components, is trying to determine the initial investment required to replace an old machine with a new, more sophisticated model. The proposed machine's purchase price is P380,000, and an additional P20,000 will be necessary to install it. It will be
Task 2. Show your computation to get the net investment cost. Note: Correct amount of Net Investment Cost is P221,160.
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