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Operating cash inflow

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Operating cash inflow
1.
The Lakers Company is interested in buying a piece of equipment that is needs. The following data assembled concerning this equipment: Cost of required equipment P250,000 Working capital required P100,000 Annual operating cash inflow 80,000 Cash repair at end of 4 years 40,000 Salvage value at end of 6 years 90,000 This equipment is expected to have a useful life of 6 years. At the end of the sixth year the working capital is 10%. Use the net present value method to answer the following question. The PV of all future operating cash inflow is a.
P617,280 b.
P45,120 c.
P348,400 d.
P278,710 Answer: C. Annual Operating Cash Inflow P 80,000 X Present Value of 1 in 6 periods 4,355 Present Value of Operating Cash Inflow P348,400 2.
The Jackson Company has invested in a machine that cost P70,00, that has a useful life of seven years, and that has no salvage value at the end of its useful life. The machine is being depreciated by the straight-line method, based on its useful life. It will have payback period of four years. Given these data, the simple rate of return (to the nearest tenth of a percent) on the machine will be (ignore taxes) a.
7.1% b.
8.2%
c.
10.7% d.
39.3% Answer: C. Investment Cost P70,000 Divided by Payback Period 4 Annual Cash Inflow 17,500 Less: Depreciation (P70,000/ 7yrs.) 10,000 Income 7,500 Divided by Investment 70,000 Simple Rate of Returns 10.7% 3.
A project required an initial investment of P70,000 and has a profitability index of 1.141. the present value of the future cash inflow from this investment is a.
P61,350 b.
P68,920 c.
P75,210 d.
P79,870 Answer: D Present Value of Investment P70,00 X Profitability Index 1.141 Present Value of Future Cash Inflow P79,870 4.
Consideration is being given to the possible purchase of a P30,000 machine for Alo, which is expected to result in a decrease of P12,000 per year in cash operating expenses. This machine, which has no residual value, has an estimated useful life of five years and will be depreciated on a straight-line basis. (ignore income taxes) a.
12% b.
20% c.
30% d.
40% Answer: B Annual Savings P12,000
Less: Depreciation (P30,000/5) 6,000 Increment Income 6,000 Divided by Investment 30,000 Simple Rate of Return 20% 5.
The Habagat, inc. is planning to spend P600,000 for a machine that it will depreciate on a straight line basis over a ten year period with no terminal disposal price. The machine will generate cash flow from operations of P120,000 a year. Ignoring income taxes, what is the accounting rate of returns on the net investment ? a. 5% b. 10% c. 12% d. 15% Answer: C Annual Cash Flow P120,000 Less: Depreciation (P600,000/10) 60,000 Accounting Net Income 60,000 Divided by Investment 600,000 Accounting Rate of Return 10% 6.
The Yates Company purchased a piece of equipment which is expected to have a useful life of 7 years with no salvage value at the end of the 7-year period. This equipment is expected to generate a cash inflow of P32,000 each year of its useful life. If this investment has a time-adjusted rate of return of 14%, then the initial cost of the equipment is a.
P150,000 b.
P137,216 c.
P12,800 d.
P343,360 Answer: B Annual Cash Inflow P32,000 Present Value of an Annuity of 1 in 7 periods 4.288 Initial cost of the Equipment (PV of ACI) P137,216
7.
A firm must choose between leasing a new asset or purchasing it with funds from a term loan. Under the purchase option, the firm will pay five equal principal payments of P1,000 each and 6% interest on the unpaid balance. Principal and interest are due at the each year for five years. Alternatively, the firm can lease the asset for five years at an annual rental cost of P1,400 with payments due at the beginning of each year. The corporate tax rate is 35% and the appropriate after-tax cost of capital is 12%. Which of the following is closest to the present value of the after-tax cost of leasing the new asset? a.
P3,674 b.
P3,779 c.
P3,849 d.
3,992 Answer: A [P1,400 X 0.65 + (P1,400 X 0.65) (3.037)] = P3,674 8.
Duke University has a small shuttle bus that is in poor mechanical condition. The bus can be either overhaul now or replaced with a new shuttle bus. The following data have been gathered concerning this two alternatives: Present Bus New Bus Purchased cost new P32,000 P40,000 Remaining book value 21,000 Major repair needed now 9,000 Annual cash operating costs 12,000 8,000 Salvage value now 10,000 Salvage value seven years from now 2,000 5,000
The university could ‘continue to use the present bus for the next seven years. If the new bus is
purchased, it will be used for the next 7 years and then traded in for another bus. The university uses a discount rate of 12% and the total cost approach to net present value analysis in evaluating its investment decisions. If the new bus is purchased, the present value of all cash flows that occur now is a.
(P4,000) b.
(P9,000) c.
(P21,000)
d.
(P30,000) Answer: D Purchase cost (New Bus) P40,000 Salvage Value (Present Bus) 10,000 Present Value All Cash Flows Occurring Now P30,000 9.
The Ralph Company is considering buying a new machine which will require a initial outlay of P15,000. The company estimated that over the next four years the machine would save P6,000 per year in cash operating expenses. At the end of four years, the machine would have no
salvage value. The company’s cost of capital is 14%. The net present value of this investment is
a.
(P12632) b.
P17,484 c.
P2,484 d.
P3,612 Answer: C Present value of cash inflow (P6,000 x 2.914) P17,484 Less: Net Investment 15,000 Net Present Value of Investment P 2,484 10.
The president of Trial Company is considering a proposal by the factory manager for the purchase of a machine for P44,000, the useful life would be eight years with no residual scrap value. The use of the machine will produce a positive annual cash flow of P10,000 a year for eight years. An annuity table shows the present value of P1 received annually for eight years and discounted at 12% is 4.968. the net present value of the proposal, discounted at 12% is: a.
P5,680 positive b.
Zero c.
P2,186 negative d.
P2,186 positive Answer: A Present Value of Cash Inflows (P10,000 x 4.968) P49,680 Less: Cost of Investment 44,000 Net Present Value P 5,680

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