ABM Enterprise needs a machine for its manufacturing process. The cost of machine is P120,700. The expected useful life of the machine is 6 years, no salvage value. After installation, the machine would increase cash inflows by P38,000 per year. The minimum required rate of return of the company is 16% on all capital investments. You are asked to help the ABM Enterprise in making decision whether to purchase or not to purchase the machine using the following approaches: a. Payback period method b. Net present value method c. Account rate of return d. Profitability index

ABM Enterprise needs a machine for its manufacturing process. The cost of machine is P120,700. The expected useful life of the machine is 6 years, no salvage value. After installation, the machine would increase cash inflows by P38,000 per year. The minimum required rate of return of the company is 16% on all capital investments. You are asked to help the ABM Enterprise in making decision whether to purchase or not to purchase the machine using the following approaches: a. Payback period method b. Net present value method c. Account rate of return d. Profitability index

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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