ABC Company is making a decision whether to invest in a new released equipment for their manufacturing operations. It will cost them P5,000,000 and has a total useful life of 10 years with a salvage value of P500,000. The expected cash flows from year 1 to year 10 is presented in the table below: YEAR EXPEC TED CASHFLOW P1,000,000 | 900,000 800,000 700,000 650,000 640,000 600,000 590,000 500,000 | 450,000 1 4 5 6 8 9 10 This equipment will also save them from maintenance cost of P10,000 and additional 5% on top of the previous maintenance cost yearly. The company expects at least 500 possible scenarios regarding net cash flows to be realized in the span of 10 years (for consistency, use the random numbers from 1 to 500). The discount rate is 12%.

ABC Company is making a decision whether to invest in a new released equipment for their manufacturing operations. It will cost them P5,000,000 and has a total useful life of 10 years with a salvage value of P500,000. The expected cash flows from year 1 to year 10 is presented in the table below: YEAR EXPEC TED CASHFLOW P1,000,000 | 900,000 800,000 700,000 650,000 640,000 600,000 590,000 500,000 | 450,000 1 4 5 6 8 9 10 This equipment will also save them from maintenance cost of P10,000 and additional 5% on top of the previous maintenance cost yearly. The company expects at least 500 possible scenarios regarding net cash flows to be realized in the span of 10 years (for consistency, use the random numbers from 1 to 500). The discount rate is 12%.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 22E

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