The firm plans to acquire a new equipment costing ₱1,340,000 to replace the equipment that is now being used. Freight charges on the new equipment are estimated at ₱75,000 and it will cost ₱90,000 to install. Special attachment to be used with this unit will be needed and will cost ₱64,000. If the new equipment is acquired, operations will be expanded and this will require additional working capital of ₱310,000. The old equipment had a net book value of ₱45,000 and will be sold for ₱25,000 wherein it provides a tax savings of [(₱25,000 – ₱45,000) x 30%] = ₱6,000. If the new equipment is not purchased, the old equipment must be overhauled at a cost of ₱320,000. This cost is deductible for tax purposes in the year incurred. Tax rate is 30%. The net cost of investment would be? ₱ 1,569,000 ₱ 1,624,000 ₱ 1,879,000 ₱ 1,886,500 ₱ 1,662,500 ₱ 1,528,000

The firm plans to acquire a new equipment costing ₱1,340,000 to replace the equipment that is now being used. Freight charges on the new equipment are estimated at ₱75,000 and it will cost ₱90,000 to install. Special attachment to be used with this unit will be needed and will cost ₱64,000. If the new equipment is acquired, operations will be expanded and this will require additional working capital of ₱310,000. The old equipment had a net book value of ₱45,000 and will be sold for ₱25,000 wherein it provides a tax savings of [(₱25,000 – ₱45,000) x 30%] = ₱6,000. If the new equipment is not purchased, the old equipment must be overhauled at a cost of ₱320,000. This cost is deductible for tax purposes in the year incurred. Tax rate is 30%. The net cost of investment would be? ₱ 1,569,000 ₱ 1,624,000 ₱ 1,879,000 ₱ 1,886,500 ₱ 1,662,500 ₱ 1,528,000

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 12P

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The firm plans to acquire a new equipment costing ₱1,340,000 to replace the equipment that is now being used. Freight charges on the new equipment are estimated at ₱75,000 and it will cost ₱90,000 to install. Special attachment to be used with this unit will be needed and will cost ₱64,000. If the new equipment is acquired, operations will be expanded and this will require additional working capital of ₱310,000. The old equipment had a net book value of ₱45,000 and will be sold for ₱25,000. If the new equipment is not purchased, the old equipment must be overhauled at a cost of ₱320,000. This cost is deductible for tax purposes in the year incurred. Tax rate is 30%. The net cost of investment would be?
The firm plans to acquire a new equipment costing ₱1,340,000 to replace the equipment that is now being used. Freight charges on the new equipment are estimated at ₱75,000 and it will cost ₱90,000 to install. Special attachment to be used with this unit will be needed and will cost ₱64,000. If the new equipment is acquired, operations will be expanded and this will require additional working capital of ₱310,000. The old equipment had a net book value of ₱45,000 and will be sold for ₱25,000. If the new equipment is not purchased, the old equipment must be overhauled at a cost of ₱320,000. This cost is deductible for tax purposes in the year incurred. Tax rate is 30%. The net cost of investment would be? a. ₱1,569,000 b. ₱1,622,000 c. ₱1,879,000 d. ₱1,886,500 e. ₱1,662,500
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