Beta Company plans to replace its company car with a new one.

The new car costs P120,000 and its

estimated useful life is five years without scrap value. The old car has a book value of P15,000 and
can be sold at P12,000. The acquisition of the new car will yield annual cash savings of P20,000
before income tax. Income tax rate is 30%.
1) The net investment of the new car is ________.
2) The payback period of the investment is ________.
Randall Corp is considering the purchase of a new machine for P38,000. The machine would generate
a net cash inflow of P11,607 per year for five years. At the end of five years, the machine would have
no salvage value. The company’s cost of capital is 12 percent. The company uses straight-line method
of depreciation.
3) What is the payback period in years for the machine approximated to two decimal points,
assuming no taxes are paid?
4) What is the net present value for the machine, assuming no taxes are paid?
The management of PAMA, INC. is planning to replace an old machinery which has a net book value
of P15,000 and a resale value of P20,000. The new machinery will cost P200,000 with an estimated
useful life of 10 years and salvage value of P5,000. The expected increase in efficiency will result in
annual cash savings of P55,000 before tax. The company is using the straight-line method of
depreciation and income tax rate is 35%. The minimum desired rate of return on this investment is
18%.
5) The net investment after income tax is ______.
6) The annual cash flow net of tax is _____.
7) The net present value of the investment is _____.