Bata Company is considering replacing a machine with a book value of P100,000, a remaining useful life of 5 years, and annual straight-line depreciation of P20,000. The existing machine has a current market value of P100,000.  The replacement machine would cost P150,000, have a 5-year life, and save P50,000 per year in cash operating costs.  If the replacement machine would

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...
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Bata Company is considering replacing a machine with a book value of P100,000, a remaining useful life of 5 years, and annual straight-line depreciation of P20,000. The existing machine has a current market value of P100,000.  The replacement machine would cost P150,000, have a 5-year life, and save P50,000 per year in cash operating costs.  If the replacement machine would be depreciated using the straight-line method and the tax rate is 40%, what would be the net investment required, the annual net cash flows, and annual net incremental taxes, respectively?

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P150,000; P42,000; P8,000
P150,000; P34,000; P8,000
P50,000; P34,000; P16,000
P50,000; P42,000; P16,000
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