A firm is planning to purchase a new machine costing ₱2,600,000 with freight and installation costs amounting to 125,000. The old unit to be traded-in will be given a trade-in allowance of ₱240,000. Other assets that are to be retired as a result of the acquisition of the new machine can be salvaged and sold for ₱52,000. The loss on the retirement of these assets is ₱50,000 will reduce taxes by ₱20,000 which is based on a tax rate of 40%. If the new machine is not purchased, extensive repairs on the old machine will have to be made at an estimated cost of ₱350,000. This cost can be avoided by purchasing the new machine. Additional gross working capital of ₱250,000 will be needed to support operations planned with the new machine. The net cost of investment would be?
A firm is planning to purchase a new machine costing ₱2,600,000 with freight and installation costs amounting to 125,000. The old unit to be traded-in will be given a trade-in allowance of ₱240,000. Other assets that are to be retired as a result of the acquisition of the new machine can be salvaged and sold for ₱52,000. The loss on the retirement of these assets is ₱50,000 will reduce taxes by ₱20,000 which is based on a tax rate of 40%. If the new machine is not purchased, extensive repairs on the old machine will have to be made at an estimated cost of ₱350,000. This cost can be avoided by purchasing the new machine. Additional gross working capital of ₱250,000 will be needed to support operations planned with the new machine. The net cost of investment would be?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 4P
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A firm is planning to purchase a new machine costing ₱2,600,000 with freight and installation costs amounting to 125,000. The old unit to be traded-in will be given a trade-in allowance of ₱240,000. Other assets that are to be retired as a result of the acquisition of the new machine can be salvaged and sold for ₱52,000. The loss on the retirement of these assets is ₱50,000 will reduce taxes by ₱20,000 which is based on a tax rate of 40%. If the new machine is not purchased, extensive repairs on the old machine will have to be made at an estimated cost of ₱350,000. This cost can be avoided by purchasing the new machine. Additional gross working capital of ₱250,000 will be needed to support operations planned with the new machine. The net cost of investment would be?
₱2,725,000 ₱2,313,000 ₱2,063,000
₱2,485,000 ₱2,973,000 ₱2,413,000
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