Scribd Logo
Upload

Welcome to Scribd!

  • 27 views

    Cash Flow Analysis Reviewer

    Uploaded by

    Mae Cruz
    Par Company decided to invest in new equipment that will have a 3-year life and produce uniform cash savings. The net present value of the equipment is P1,750 using an 8% discount rate, and the internal rate of return is 12%. The annual cash inflow from the equipment is P21,342.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Cash Flow Analysis Reviewer

    Uploaded by

    Mae Cruz
    27 views2 pages
    Par Company decided to invest in new equipment that will have a 3-year life and produce uniform cash savings. The net present value of the equipment is P1,750 using an 8% discount rate, and the internal rate of return is 12%. The annual cash inflow from the equipment is P21,342.

    Original Title

    Cash flow analysis reviewer

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Par Company decided to invest in new equipment that will have a 3-year life and produce uniform cash savings. The net present value of the equipment is P1,750 using an 8% discount rate, and the internal rate of return is 12%. The annual cash inflow from the equipment is P21,342.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    27 views2 pages

    Cash Flow Analysis Reviewer

    Uploaded by

    Mae Cruz
    Par Company decided to invest in new equipment that will have a 3-year life and produce uniform cash savings. The net present value of the equipment is P1,750 using an 8% discount rate, and the internal rate of return is 12%. The annual cash inflow from the equipment is P21,342.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Par Company has decided to invest in some new equipment.

    The equipment will have a three-year

    life and will produce a uniform series of cash savings. The net present value of the equipment is P1,750,

    using a discount rate of 8 percent. The internal rate of return is 12 percent.

    Present values at 8% and 12% respectively:

    8%: Annuity – 2.5771; end of 3 periods, 0.7938

    12%: Annuity – 2,4018; end of 3 periods, 0.7118

    What is the amount of annual cash inflow?

    a. P 23,240

    b. P 21,342

    c. P 9,980

    d. P 12,351

    12. Sy Inc., is considering investing in automated equipment with a ten-year useful life. Managers at Sy

    have estimated the cash flows associated with the tangible costs and benefits of automation, but have
    been

    unable to estimate the cash flows associated with the intangible benefits. Using the company’s 10%

    discount rate, the net present value of the cash flows associated with just the tangible costs and
    benefits is

    a negative P184,350. The present value of annuity of 1 at 10 percent for ten years is 6.145 while the

    present value of 1 is 0.386. How large would the annual net cash inflows from the intangible benefits

    have to be to make this a financially acceptable investment?

    a. P 18,435.

    b. P 30,000.

    c. P 35,000.

    d. P 37,236.

    13. Mar Co. is considering the purchase of a new ocean-going vessel that could potentially reduce labor

    costs of its operation by a considerable margin. The new ship would cost P500,000 and would be fully

    depreciated by the straight-line method over 10 years. At the end of 10 years, the ship will have no
    value

    and will be sunk in some already polluted harbor. The Mar Co.’s cost of capital is 12 percent, and its

    marginal tax rate is 40 percent. If the ship produces equal annual labor cost savings over its 10-year life,
    how much do the annual savings in labor costs need to be to generate a net present value of P0 on the

    project?

    Use the following PV: annuity of 1, 10 periods at 12% - 5.6502; end of 10th period – 0.32197.

    a. P 68,492

    b. P 147,487

    c. P 114,154

    d. P 88,492

    14. Rose Company invested in a machine with a useful life of six years and no salvage value. The

    machine was depreciated using the straight-line method. It was expected to produce annual cash inflow

    from operations, net of income taxes, of P6,000. The present value of an ordinary annuity of P1 for six

    periods at 10% is 4.355. The present value of P1 for six periods at 10% is 0.564. Assuming that Rose

    used a time- adjusted rate of return of 10%, what was the amount of the original investment?

    a. P 10,640

    b. P 29,510

    c. P 22,750

    d. P 26,130

    15. Wade Company is planning to buy a coin-operated machine costing P400,000. For book and tax

    purposes, this machine will be depreciated P80,000 each year for five years. Wade estimates that this

    machine will yield an annual inflow, net of depreciation and income taxes, of P120,000. Wade’s desired

    rate of return on its investments is 12%. At the following discount rates, the NPVs of the investment in

    this machine are:

    Discount Rate NPV

    12% +P3,258

    14% + 1,197

    16% - 708

    You might also like