The following data pertain to Sunlight Corp., whose management is planning to purchase an automated tanning equipment. Economic life of equipment – 8 years.Disposal value after 8 years – nil.Estimated net annual cash inflows for each of the 8 years – P81,000.Time-adjusted internal rate of return – 14%Cost of capital of Sunlight Corp – 16%The table of present values of P1 received annually for 8 years has these factors: at 14% = 4.639, at 16% = 4.344Depreciation is approximately P46,970 annually. Find the required increase in annual cash inflows in order to have the time-adjusted rate of return approximately equal the cost of capital.

Net Present Value- The difference between the current value of cash inflows and withdrawals over a…

Answered: The following data pertain to Sunlight…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 2P

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The following data pertain to Sunlight Corp., whose management is planning to purchase an automated tanning equipment.

Economic life of equipment – 8 years.
Disposal value after 8 years – nil.
Estimated net annual cash inflows for each of the 8 years – P81,000.
Time-adjusted internal rate of return – 14%
Cost of capital of Sunlight Corp – 16%
The table of present values of P1 received annually for 8 years has these factors: at 14% = 4.639, at 16% = 4.344
Depreciation is approximately P46,970 annually.

Find the required increase in annual cash inflows in order to have the time-adjusted rate of return approximately equal the cost of capital.

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