Priscila Eunice Co. is interested in purchasing a state-of-the-art packaging machine for its manufacturing plant. The new machine has been designed to basically eliminate all errors and defects in the production process. The new machine will cost P150,000, and have a salvage value of P70,000 at the end of its seven-year useful life. Priscila Eunice has determined that cash inflows for years 1 through 7 will be as follows: P32,000; P57,00o; P15,000; P28,000; P16,000; P10,000; and P15,000 respectively. Maintenance will be required in years 3 and 6 and at P10,000 and P7,000 respectively. Priscila Eunice uses a discount rate of 11 percent and wants projects to have a payback period of no longer than 5 years. Required:
Priscila Eunice Co. is interested in purchasing a state-of-the-art packaging machine for its manufacturing plant. The new machine has been designed to basically eliminate all errors and defects in the production process. The new machine will cost P150,000, and have a salvage value of P70,000 at the end of its seven-year useful life. Priscila Eunice has determined that cash inflows for years 1 through 7 will be as follows: P32,000; P57,00o; P15,000; P28,000; P16,000; P10,000; and P15,000 respectively. Maintenance will be required in years 3 and 6 and at P10,000 and P7,000 respectively. Priscila Eunice uses a discount rate of 11 percent and wants projects to have a payback period of no longer than 5 years. Required:
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 4P
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