The Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of a special equipment for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: 1. How much is the after tax cash flows of Project 1? 2. How much is the net benefit of investing in Project 2? Project 1 ( Investment in a new product)P 750,000325,00030,000RevenuesExpected annual cash expensesDepreciationIncome tax – 30%Required investment outlay, P1,200,000. The equipment is expected tobe used for 5 years then to be disposed at its estimated salvage value ofP50,000. The income trend is expected to continue for the next 5 years.Project 2 ( Acquisition of a special equipment)Cost of special equipmentExpected cash savingsfrom overhead expensesP 800,000250,000The equipment has an estimated life of 8 years but will be used only for6 years then to be sold at book value.

Project 1 Given that Revenue = 750000 Cash expenses = 325000 Depreciation…

The Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of a special equipment for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: 1. How much is the after tax cash flows of Project 1? 2. How much is the net benefit of investing in Project 2?

The Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of a special equipment for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: 1. How much is the after tax cash flows of Project 1? 2. How much is the net benefit of investing in Project 2?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 17P

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