INVESTMENTS and PROFITABILITY ANALYSIS

N.8. Problems:
1. Given:
Total Fixed Capital Working Capital Salvage value Service Life Annual Cash Flow
P 100,000 P11,000 P 10,000 6 years P 36,000
Cost of money=12 % pa.
Solve for the net present worth of the investment.
a. P 47,650 b. P 12,131 c. P11,825 d. P11,520
2. The initial cost of the equipment is P100,000, a salvage value of P12,000 after 5 years and annual repair and maintenance
cost of P10,000. If cost of money is 10% pa, the capitalized cost is:
a. P 260,231 b. P 112,131 c. P131,825 d. P121,520
3. An investment requires an initial fixed capital of P100,000 and a working capital of P20,000. The fixed capital investment
has salvage value of P10,000 after 5 years. The projected annual cash flow is P36,000 and annual expenses is P44,000.
Assume a minimum yield on investment of 15% pa.
Determine the pay-out period in years with interest.
a. 2 b. 3 c. 4 d.6
4. Determine the net present worth *refer to previous problem)
a. P 18,560 b. P 12,131 c. P22,980 d. P15,593
5. Determine the capitalized costs
a. P 318,560 b. P 412,131 c. P522,980 d. P502,323
6. The annual fixed costs of a plant is P100,000 and the variable costs is P140,000 at 70% operating capacity with net sales of
P280,000. What is the break-even point in units of production if the selling price per unit is P40?
a.3500 b. 3450 c. 4450 d. 5,000
7. A company produces 100,000 units of electric fans annually at P900 per unit. A unit is sold at P 1,400. The fixed costs of
production is P5.0M. The company has 1000 shares of stocks at P50,000 per stock paying an annual dividend of 10%.
What is the break-even-point?
a.3,500 b. 9,450 c. 14,450 d. 20,0000
1. What is the capitalized cost of the of the equipment which has an initial cost of P200,000, salvage value of
P20,000 after a service life of 5 years and a maintenance cost of P25,000 every 2 years. Cost of money is 10%
pa.
a. P613,883 b. P497,026 c. P683,113 d. P383,600
2. What is the capital recovery cost of the of the equipment which has an initial cost of P500,000; salvage value of
P20,000 after a service life of 5 years. Cost of money is 10% pa.
a. P 100,921 b. P 119,230` c. P 128,623 d. P 177,644
3. A proposed plant will require a fixed capital investment of P100M. It is estimated that the working capital will
amount to 20% of the total capital investment, and annual depreciation costs are estimated to be 10% of the fixed-
capital investment. If the annual net profit will be P30 M, determine the minimum pay-out period.
a. 5 years b. 3.3 years c. 5.5 years d. 2.5 years
4. Find the return on total investment of the preceding problem.
a. 24% b. 10.8% c. 11% d. 11.5%
5. The capitalized cost for a piece of equipment has been found to be P550,000. This cost is based on the original
cost plus the present value of an indefinite number of renewals. An annual interest rate of 12% was used in
determining the capitalized cost. The salvage value of the equipment at the end of the service life was taken to be
10% of the first cost of the equipment and the service life was estimated to be 10 years. Under these conditions,
what would be the original cost of the equipment?
a. P 385,321 b. P 258,000 c. P 310,00 d. P450,000
6. An investigation of a proposed investment has been made. The following result has been presented to
management. The minimum pay-out period based on the capital recovery using a minimum annual return of
10% as a fictitious expense is 10 years; Annual depreciation costs amount to 8% of the total investment. Using
this information, Determine the standard rate of return on the total investment.
a. 6.27% b. 10% ` c. 8.27 % d. 16.27%
7. Calculate the theoretical pay-out time for an oil field gas compressor station that costs P48,000,000 for a 20 m3
hourly capacity if operating and other production costs are P300,000 per year except for depreciation. The
selling price of the gas is P100 per/m3 with interest at 8% and equipment life of 12 years.
a. 12 years b. 7 years c. 9 years d. 10 years
8. Two electric motors (A and B) are being considered to drive a centrifugal pump. Each motor is capable of delivering 50
HP (output) to the pumping operation. It is expected that the motors will be in use 1,000 hours per year. If electricity costs
P6.00/kwh and minimum rate of return on investment is 8%what would be the expected savings in annual cost if motor A
is chosen instead of motor B? Pls refer to the following data:
Motor A Motor B
Initial Cost P48,000 P40,000
Electrical Eff 82% 77%
Annual Maintenance P6,000 P10,000
Service Life 4 years 5 years
a. P17,248 b. P 18,569 c. P 10,339 d. P42,708
9. In the food industry the variable costs for canning whole corn may be considered as made up as follows: raw materials
49%, packaging 24%, direct labor 17%, and others 10%. If the fixed costs are P1M and are equivalent to one-half the direct
costs at full production, what is the profit on operation if sales are P4M
a. P1M b. P2M c. P1.5M d. P0.5M
10. What would be the increase in profit if packaging costs are reduced by 25%?
a. P1M b. P2M c. P1.5M d. P0.06M
11. A company having annual fixed costs of P3.1M with variable costs of 0.38 of net sales does an annual business of P8M per
year at 100% capacity. What is the percent capacity at breakeven point.
a. 35% b. 42.25% c. 62.5% d. 75%