CAP Company is considering to replace Machine A with Machine B. Machine B will cost P150,000 and will result in annual savings of P40,000 before tax because of expected increase in operating efficiency. Machine B has an estimated useful life of 10 years and salvage value of P10,000. Machine A has a book value of P16,000 and a disposal value of P20,000 now. Straight-line depreciation is used and the company has an average income tax rate of 35%. The minimum desired rate of return on this investment is 20%. The present value of an ordinary annuity of P1 in arrears for 10 periods at 20% is 4.192. The present value of P1 for 10 periods at 20% is 0.162 Task 1. Present your computation of the correct annual cash flow net of tax amounting to P30,900.
CAP Company is considering to replace Machine A with Machine B. Machine B will cost P150,000 and will result in annual savings of P40,000 before tax because of expected increase in operating efficiency. Machine B has an estimated useful life of 10 years and salvage value of P10,000. Machine A has a book value of P16,000 and a disposal value of P20,000 now. Straight-line depreciation is used and the company has an average income tax rate of 35%. The minimum desired rate of
Task 1. Present your computation of the correct annual
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