Solidum Company is investigating the purchase of a piece of automated equipment that will save

P100,000 each year in direct labor and inventory carrying costs. This equipment costs P750,000 and is
expected to have a 10-year useful life with no salvage value. The company requires a minimum 15%
return on all equipment purchases. Management anticipates that this equipment will provide intangible
benefits such as greater flexibility and higher quality output.

The PV of annuity of 1, 15% for 10 periods 5.01877

The PV of 1, end 10 period 0.24718

What peso value per year would these intangible benefits have to have in order to make the equipment
an acceptable investment?

A. P248,123 C. P 61,331

B. P 49,440 D. P 55,000

Altas, Inc., is considering investing in automated equipment with a ten-year useful life. Managers at
Altas 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. P18,435. C. P35,000.

B. P30,000. D. P37,236