VIII.

Net Present Value (with Uniform Cash Flow)

Bull Company plans to buy a new machine costing P28,000. The new machine is expected to
have a savings value of P4,000 at the end of its economic life of 4 years. The annual cash inflows before
income tax from this machine have been estimated at P11,000. The tax rate is 20%. The company
desires a minimum return of 25% on invested capital.

Required: Determine the net present value

IX. NPV, Profitability Index, and Internal Rate of Return (Even vs. Uneven Cash Flows)

Yeah Company gathered the following data on two capital investment opportunities:

Project 1 Project 2

Cost of Investment P195,200 P150,000

Cost of Capital 10% 10%
Expected useful life 3 years 3 years
Net cash inflows P100,000 P100,000*

*this amount is to decline by P20,000 annually thereafter.

Required: Round-off factors to three decimal places in all cases.

Project 1 Project 2

NPV
Profitability Index

What is project 1’s IRR?

What is project 2’s time-adjusted rate of return?

X. Payback reciprocal

Live Company is planning to buy an equipment costing P640,000 that has an estimated life of 30
years and is expected to produce after-tax net cash inflows of P128,000 per year.

Required: Without using present value, estimate the IRR

XI. Discounted & Non-discounted Capital Budgeting Techniques

Biz Company is considering buying a new machine, requiring an immediate P400,000 cash
outlay. The new machine is expected to increase an annual net after-tax cash receipt by P160,000 in
each of the next five years of its economic life. No salvage value is expected at the end of 5 years. The
company desires a minimum return of 14% on invested capital.

Required: Round off factors to three decimal places in all cases

1. Payback Period
2. ARR (based on original investment)
3. NPV
4. Profitability Index
5. IRR