Assignment in Capital Investment

1. Dukes Company is considering the acquisition of a machine that costs P375,000. The machine is
expected to have a useful life of 6 years, a negligible residual value, an annual cash flow of
P150,000, and annual operating income of P87,500. What is the estimated cash payback period for
the machine?

2. What is the expected average rate of return for a proposed investment of P4,800,000 in a fixed asset,
using straight line depreciation, with a useful life of 20 years, no residual value, and an expected
total net income of P12,000,000?

3. The management of Arnold Corporation is considering the purchase of a new machine costing
P400,000. The company's desired rate of return is 10%. The present value factors for P1 at
compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621,
respectively. In addition to the foregoing information, use the following data in determining the
acceptability in this situation:

Income from Net Cash

Year Operations Flow
1 P100,000 P180,000
2 40,000 120,000
3 20,000 100,000
4 10,000 90,000
5 10,000 90,000

a. What is the cash payback period for this investment?

b. What is the average rate of return for this investment?

4. The management of Arnold Corporation is considering the purchase of a new machine costing
P430,000. The company's desired rate of return is 10%. The present value factors for P1 at
compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621,
respectively. In addition to the foregoing information, use the following data in determining the
acceptability in this situation:

Income from Net Cash

Year Operations Flow
1 P100,000 P180,000
2 40,000 120,000
3 20,000 100,000
4 10,000 90,000
5 10,000 90,000

What is the net present value for this investment?