stment decision should not be based only on payback period. Currently, the company is considering to purchase a new machine that will provide annual cash flow 00,000 in the first year of use, P1,200,000 in its second year of use, P1,000,000 in the third year, and P740,000 in each year of the remaining of 8 years life of the ect. The machine cost P5,600,000 and could be sold for P2,500,000 after its useful life. The company's cost of capital is 12%. he investment analyst of the company which of the Payback Method and the Present Value Method would you recommend to become the basis for pursuing the ect? Explain your answers. Support your recommendation with computed values.

stment decision should not be based only on payback period. Currently, the company is considering to purchase a new machine that will provide annual cash flow 00,000 in the first year of use, P1,200,000 in its second year of use, P1,000,000 in the third year, and P740,000 in each year of the remaining of 8 years life of the ect. The machine cost P5,600,000 and could be sold for P2,500,000 after its useful life. The company's cost of capital is 12%. he investment analyst of the company which of the Payback Method and the Present Value Method would you recommend to become the basis for pursuing the ect? Explain your answers. Support your recommendation with computed values.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 16P: Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of...

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Wendys boss wants to use straight-line depreciation for the new expansion project because he said it will give higher net income in earlier years and give him a larger bonus. The project will last 4 years and requires 1,700,000 of equipment. The company could use either straight line or the 3-year MACRS accelerated method. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life. (Ignore the half-year convention for the straight-line method.) The applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%, as discussed in Appendix 11A. The project cost of capital is 10%, and its tax rate is 25%. a. What would the depreciation expense be each year under each method? b. Which depreciation method would produce the higher NPV, and how much higher would it be? c. Why might Wendys boss prefer straight-line depreciation?