38. RYX Company has the chance to introduce a new product. RYX expects the product to sell for P75 with a variable cost per unit of P50. The annual fixed costs, depreciation not included is P4,500,000. The company expects to sell 300,000 units. To produce a new product line, the company needs to purchase a new machine that costs P6,000,000. The new machine is expected to last for four years with a very negligible salvage value. The company has a policy of depreciating its machine for both book and tax purposes for four years. The company has a marginal cost of capital of 13.75% and is subject to a tax rate of 40%. How much is the machine’s net present value?

FINANCIAL ACCOUNTING
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Author:Libby
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Chapter1: Financial Statements And Business Decisions
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38. RYX Company has the chance to introduce a new product.  RYX expects the product to sell for P75 with a variable cost per unit of P50.  The annual fixed costs, depreciation not included is P4,500,000.  The company expects to sell 300,000 units.  To produce a new product line, the company needs to purchase a new machine that costs P6,000,000.  The new machine is expected to last for four years with a very negligible salvage value.  The company has a policy of depreciating its machine for both book and tax purposes for four years.  The company has a marginal cost of capital of 13.75% and is subject to a tax rate of 40%.

How much is the machine’s net present value?

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