Kyuti, owner of Cutie Company, was approached by a local dealer in air conditioning units. The dealer proposed replacing Cutie's old cooling system with a modern, more efficient system. The cost of the new system was quoted at P100,000, but it would save P20,000 per year in energy costs. The estimated life of the new system is 10 years, with no salvage value expected. Excited over the possibility of saving P20,000 per year and having a more reliable unit, Ms. Kyuti requested an analysis of the project's economic viability. All capital projects are required to earn at least the firm's cost of capital, which is 10 percent. Income tax rate is 30% of taxable income. REQUIRED: Determine the annual net cash inflows and net returns (net income) for the proposed project.
Kyuti, owner of Cutie Company, was approached by a local dealer in air conditioning units. The dealer proposed replacing Cutie's old cooling system with a modern, more efficient system. The cost of the new system was quoted at P100,000, but it would save P20,000 per year in energy costs. The estimated life of the new system is 10 years, with no salvage value expected. Excited over the possibility of saving P20,000 per year and having a more reliable unit, Ms. Kyuti requested an analysis of the project's economic viability. All capital projects are required to earn at least the firm's cost of capital, which is 10 percent. Income tax rate is 30% of taxable income. REQUIRED: Determine the annual net cash inflows and net returns (net income) for the proposed project.
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
9th Edition
ISBN:9781305635937
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 11P: REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old...
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Transcribed Image Text:Exercise 2
Kyuti, owner of Cutie Company, was approached by a local dealer in air conditioning units. The dealer
proposed replacing Cutie's old cooling system with a modern, more efficient system. The cost of the
new system was quoted at P100,000, but it would save P20,000 per year in energy costs. The
estimated life of the new system is 10 years, with no salvage value expected. Excited over the
possibility of saving P20,000 per year and having a more reliable unit, Ms. Kyuti requested an analysis
of the project's economic viability. All capital projects are required to earn at least the firm's cost of
capital, which is 10 percent. Income tax rate is 30% of taxable income.
REQUIRED: Determine the annual net cash inflows and net returns (net income) for the proposed
project.
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