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    Acct7Chap13 4

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    peterlaurean.idol
    Accounting 7 Chapter 13 .4

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    Acct7Chap13 4

    Uploaded by

    peterlaurean.idol
    5 views6 pages
    Accounting 7 Chapter 13 .4

    Original Title

    Acct7Chap13.4.

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    © © All Rights Reserved

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    Accounting 7 Chapter 13 .4

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    5 views6 pages

    Acct7Chap13 4

    Uploaded by

    peterlaurean.idol
    Accounting 7 Chapter 13 .4

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 6

    REQUIRED:

    a. Determine the net investment.

    Cost of Machine B ₱ 160,000


    Less: Disposal value of machine A ₱ 20,000
    Tax on gain (4,000* x 35%) 1,400 18,600
    Net Investment ₱ 141,400

    b. Determine the annual cash flow net of income tax.

    Annual cash savings from Machine B ₱ 40,000 ₱ 40,000


    Less: Annual Depreciation 15,000
    Tax Savings after Depreciation 25,000
    Income Tax Rate 35%
    Income Tax 8,750
    Annual cash flow net of income tax ₱ 31,250

    c. What is the net present value of the investment

    Present value of annual cash saving net of tax* ₱ 131,000


    Add: Present value of salvage value of Machine B** 1,620
    Total Present Value of cash inflow ₱ 132,620
    Less: Net Investment 141,400
    Net Present Value (negative) -₱ 8,780
    *Sale value of old machine ₱ 20,000
    Book value of old machine 16,000
    Gain on sale ₱ 4,000

    Annual Depreciation
    =160,000-10,000/10 years = 15,000

    * 31,250 x 4.192 = 131,000


    ** 10,000 x 0.162 = 1,620
    REQUIRED: Compute the discounted payback period

    Year Cashflow Present value factor at 6% Discounted cash flow

    0 -₱ 100,000.00 1 -₱ 100,000.00
    1 30,000.00 0.9434 28,302.00
    2 40,000.00 0.89 35,600.00
    3 35,000.00 0.83962 29,386.70
    4 20,000.00 0.79209 15,841.80
    5 15,000.00 0.74726 11,208.90

    Discounted payback period


    = 3+(6,711.3/15,841.8)
    = 3.42 yrs.
    Discounted Balance

    -₱ 100,000.00
    - 71,698.00
    - 36,098.00
    - 6,711.30
    9,130.50
    REQUIRED: Compute for the profitability index of each project and recommend what project should be accep

    Project X
    Year Cash flow Present value factor at 20% Present Value of Cash Inflows

    1 ₱ 220,000 0.83333 ₱ 183,332.60


    2 200,000 0.69444 138,888.00
    3 450,000 0.5787 260,415.00

    Profitability index of Project X

    PV Index = 183,332.60+138,888+260,415/575,000
    = 582,635.60/575,000
    = 1.013279304

    Project Y
    Year Cash flow Present value factoctor at 20% Present Value of Cash Inflows

    1 ₱ 420,000 0.8333 ₱ 349,986


    2 325,000 0.69444 225,693
    3 200,000 0.5787 115,740

    Profitability index of Project Y


    PV Index = PV of Cash Inflows / PV of Net Investment

    PV Index = 349,986+225,693+115,740/580,000
    = 619,419/580,000
    = 1.192101724

    Rizal Company should accept Proposal Y since has higher Profitability Index than Proposal X

    PROJECT X 1.01327930434783
    PROJECT Y 1.19210172413793
    at project should be accepted by Rizal Company

    PV of Cash flows ₱ 582,635.60


    PV of Net Investment 575,000

    PV of Cash flows ₱ 691,419


    PV of Net Investment 580,000

    Proposal X

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