Elis-elis Corp., a manufacturer of ID cards, was considering the replacement of one of its machine. The machine has a book value of P500,000 and still had a five remaining years of useful life.. The company had been using straight line method for the depreciation of machines. The scrap value of this machine was P50,000 and this can be sold now for P350,000. If management opted to continue using this machine, a repair cost of P80,000 will be incurred.. The replacement machine is a computerized-controlled and more energy-efficient. It has a price tag of P950,000 with an economic life of 5 years and a market value of P150,000 after the life of the asset. The machine which is a product of rapid technological changes required further testing and setting up, that would cost P50,000 (not to be capitalized) but would decrease working capital by P75,000. The accountant wants to depreciate this asset using a 5-year MACRS (1st year, 20%; 2nd year, 27%; 3rd year, 19%; 4th year, 12%;; 5th year, 12%; 6th year, 10%). The company's tax rate is 30%, and all capital investment needs a minimum required return of 9% p.a. The relative economy of the replacement machine over the old machine is summarized below: Old machine P 1,600,000 1,450,000 Cash revenues Cash expenses Required a. Compute for all relevant cash flows New machine P1,920,000 1,575,000
Elis-elis Corp., a manufacturer of ID cards, was considering the replacement of one of its machine. The machine has a book value of P500,000 and still had a five remaining years of useful life.. The company had been using straight line method for the depreciation of machines. The scrap value of this machine was P50,000 and this can be sold now for P350,000. If management opted to continue using this machine, a repair cost of P80,000 will be incurred.. The replacement machine is a computerized-controlled and more energy-efficient. It has a price tag of P950,000 with an economic life of 5 years and a market value of P150,000 after the life of the asset. The machine which is a product of rapid technological changes required further testing and setting up, that would cost P50,000 (not to be capitalized) but would decrease working capital by P75,000. The accountant wants to depreciate this asset using a 5-year MACRS (1st year, 20%; 2nd year, 27%; 3rd year, 19%; 4th year, 12%;; 5th year, 12%; 6th year, 10%). The company's tax rate is 30%, and all capital investment needs a minimum required return of 9% p.a. The relative economy of the replacement machine over the old machine is summarized below: Old machine P 1,600,000 1,450,000 Cash revenues Cash expenses Required a. Compute for all relevant cash flows New machine P1,920,000 1,575,000
Chapter11: Long-term Assets
Section: Chapter Questions
Problem 13PB: Montezuma Inc. purchases a delivery truck for $20,000. The truck has a salvage value of $8,000 and...
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Transcribed Image Text:Elis-elis Corp., a manufacturer of ID cards, was considering the
replacement of one of its machine. The machine has a book value of
P500,000 and still had a five remaining years of useful life.. The company
had been using straight line method for the depreciation of machines. The
scrap value of this machine was P50,000 and this can be sold now for
P350,000. If management opted to continue using this machine, a repair cost
of P80,000 will be incurred..
The replacement machine is a computerized-controlled and more
energy-efficient. It has a price tag of P950,000 with an economic life of 5
years and a market value of P150,000 after the life of the asset.
The machine which is a product of rapid technological changes
required further testing and setting up, that would cost P50,000 (not to be
capitalized) but would decrease working capital by P75,000. The accountant
wants to depreciate this asset using a 5-year MACRS (1st year, 20%; 2nd
year, 27%; 3rd year, 19%; 4th year, 12%;; 5th year, 12%; 6th year, 10%). The
company's tax rate is 30%, and all capital investment needs a minimum
required return of 9% p.a. The relative economy of the replacement machine
over the old machine is summarized below:
Old machine
P 1,600,000
1,450,000
Cash revenues
Cash expenses
Required
a. Compute for all relevant cash flows
New machine
P1,920,000
1,575,000
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