2. Pinky Company plans to buy a new machine to increase its plant's productive capacity. The new machine's estimated installed cost is P50,000. It is expected to have no salvage value at the end of its useful life of 5 years. Based on Pinky's projections, the new machine can produce 100,000 units of product per year. Because of the high demand for this product for which the company sells at P5 each (cash), it is expected that all the units produced will be sold. Relevant production, selling and administrative costs related to the product amount to P3 each, exclusive of depreciation. The company pays income tax at the rate of 30% of taxable income.

2. Pinky Company plans to buy a new machine to increase its plant's productive capacity. The new machine's estimated installed cost is P50,000. It is expected to have no salvage value at the end of its useful life of 5 years. Based on Pinky's projections, the new machine can produce 100,000 units of product per year. Because of the high demand for this product for which the company sells at P5 each (cash), it is expected that all the units produced will be sold. Relevant production, selling and administrative costs related to the product amount to P3 each, exclusive of depreciation. The company pays income tax at the rate of 30% of taxable income.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 3P

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