BM2108

NAME: DATE: SCORE:

INVESTMENT DECISIONS PART 1 (30 points)

CASE 1: PAYBACK PERIOD (1 item x 10 points)

An asset with a cost of P1,200,000 is to be depreciated over 10 years with no residual value. Profit after
depreciation for the first five (5) years are as follows:

Year 1 120,000.00
Year 2 170,000.00
Year 3 280,000.00
Year 4 370,000.00
Year 5 80,000.00

Required: Compute for the Payback Period to the nearest month.

CASE 2: ACCOUNTING RATE OF RETURN (2 items x 10 points)

ABC Company wants to purchase a new line of machinery. Two (2) models are available, one (1) has a slightly
higher capacity than the other. The costs and expected benefits are as follows:

Machine X Machine Y
Acquisition cost 80,000.00 150,000.00
Estimated useful life 5 5
Profit before depreciation
Year 1 50,000.00 50,000.00
Year 2 50,000.00 50,000.00
Year 3 30,000.00 60,000.00
Year 4 20,000.00 60,000.00
Year 5 10,000.00 60,000.00

Required: Using Accounting Rate of Return, which equipment should be selected by ABC Company? Show
your solution.

Rubric for grading the computation:

CRITERIA POINTS
Complete solution with correct answer 10
Half of the solution is correct 5
First major step of the solution is correct 2

06 Task Performance 1 *Property of STI

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