30.

Smooth Automotive has implemented a new project that has an initial cost, and then generates inflows of
P10,000 a
year for the next seven (7) years. The project has a payback period of 4.0 years. What is the project’s internal rate
of
return (IRR)?
A. 14.79%
B. 16.33%
C. 18.54%
D. 15.61%
31. Berry Products is considering two pieces of machinery. The first machine costs P50,000 more than the second
machine.
During the two-year life of these two alternatives, the first machine has P155,000 more cash flow in year one and
a at
year-end. The present value of 1 at 15% end of 1 period and 2 periods are 0.86957 and 0.75614, respectively. The
present
value of 1 at 8% end of period 1 is 0.92593 and period 2 is 0.85734.
At what discount rate would Machine 1 equally acceptable as machine 2?
A. 9%
B. 10%
C. 11%
D. 12%
32. The Zeron Corporation recently purchased a new machine for its factory operations at a cost of P921,250. The
investment
is expected to generate P250,000 in annual cash flows for a period of six years. The required rate of return is 14%.
The
old machine has a remaining life of six years. The new machine is expected to have zero value at the end of the
six-year
period. The disposal value of the old machine at the time of replacement is zero. What is the internal rate of
return?
A. 15%
B. 16%
C. 17%
D. 18%
33. Rohan Transport is considering two alternative buses to transport people between cities that are in the
Southeastern
U.S., such as Baton Rogue and Gainesville. A gas-powered bus has a cost of P55,000 and will produce end-of-year
net
cash flows of P22,000 per year for 4 years. A new electric bus will cost P90,000 and will produce cash flows of
P28,000
per year for 8 years. The company must provide bus service for 8 years, after which it plans to give up its franchise
and
to cease operating the route. Inflation is not expected to affect either costs or revenues during the next 8 years. If
Rohan
Transport’s cost of capital is 17 percent, by what amount will the better project increase the company’s value?
A. P5,350
B. P17,441
C. P10,701
D. P27,801
34. Union Electric Company must clean up the water released from its generating plant. The company’s cost of
capital is 11
percent for average projects and that rate is normally adjusted up or down by 2 percentage points for high and
low-risk
projects. Clean-Up Plan A, which if of average risk, has an initial cost of P10 million and its operating cost will be
P1 million per year for its 10-year life, Plan B, which is high-risk project, has an initial cost of P5 million and its
annual operating cost
over Years 1 to 10 will be P2 million. What is the approximate PV of costs for the better project? (VD)
A. -P5.9 million
C. -P16.8 million
B. -P15.9 million
D. –P17.8 million

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