 Sandy Corporation is planning to buy a

new equipment costing 150,000 to

replace an old one purchased 6 years
ago for 90,000. The old equipment is
being depreciated on a straight-line
basis over 10 years to a zero salvage
value. The same method and useful life
will be used to depreciate the new
equipment. Tax rate is 32%. If the old
equipment is sold for 30,000 and the new
one is purchased, what is the net initial
investment?
 Fermin Printers, Inc. is planning to replace
its present printing equipment with a
more efficient unit. The new equipment
will cost 400,000, with a 5 year useful life,
no salvage value. The old unit was
acquired 3 years ago for 500,000. the
company uses the straight line method in
depreciating its assets. It is being
depreciated at 62,500 per year. If the
new equipment is acquired, the old one
will be sold for 100,000. tax rate is 32%
 Buhay Corp. is planning to purchase a
new machine for 140,000. The machine
has an estimated useful life of 4 years
with no salvage value. It will be
depreciated on a straight line basis. In
evaluating the proposal to acquire the
new machine, the company’s
calculated ARR is 10% based on initial
investment. The new machine is
expected to produce annual cash inflow
of?
 Summer Company wants to replace
the old air condition. The cost of the
new system was quoted at 100,000
but it would save 20,000 per year in
energy costs. The estimated life of the
new system is 10 years, with no
salvage value. The income tax rate is
30%. Determine the annual net cash
inflows and net returns for the project.
 Twodep Corp. existing equipment
has a book value of 20,000, a five-
year remaining life, and a 25,000
market value. The proposed
process requires machinery
costing 120,000 with a useful life of
five years and no salvage value.
The tax rate is 30%. What is the net
investment?
A project costing 180,000 will produce
the following annual cash flows and
salvage value
YEAR CASH FLOWS SV
1 50,000 60,000
2 50,000 55,000
3 40,000 50,000
4 40,000 45,000
What is the bail-out period?
 At the beginning of 2016, Cass Corp is considering to
replace an old machine. The old machine is fully
depreciated but still can be used for 5 more years. If
replaced, it can be sold for 50,000 on the replacement
date. The new machine has a purchase price of 1,000,000.
The use of the new machine will result to greater efficiency
and will cause annual cash savings in operating costs of
320,000 up to its useful life. Discount rate is 10% and
income tax is 32%. The new machine is depreciated on a
straight line basis over a period of 5 years.
 A. What is the net cost of investment in the new machine?
 B. What is the annual cash inflows from operating the new
machine?
 C. The new machine is expected to have a payback
period of?
 D. The new machine NPV is?
 E. The new machine PI is?
 Pole-land Company has an investment
opportunity costing 90,000 that is expected
to yield the following cash flows over the
next 5 years
YEARCASH FLOW
1 40,000
2 35,000
3 30,000
4 20,000
5 10,000
a. Payback period in months
b. Book rate of return
 Thecompany adopts a high fixed cost
policy. Fixed cost is 2,000,000 and
depreciation is 450,000 million.
Assuming profits of 550,000. What is
the DOL?
 Basic Corp. produces and sells a single
product. The selling price is 25 and the
variable costs is 15 per unit. The
corporation’s fixed costs is 100,000 per
month. Average monthly sales is 11,000
units.
a. What is operating leverage
b. What is the break-even point in units
and in peso?