25 ITEMS

I. PROBLEM
II. IDENTIFICATION
EYECANHEARYOU COMPANY needs an Ultrasonic Contact Lens
Assembly Machine for its manufacturing process. The cost of the new
machine is P20,000. The expected useful life is 5 years and would
increase cash inflows by P5,000; P10,000; P15,000; P20,000; and
P30,000, respectively, for each of the Years 1 through 5. The
minimum required rate of return is 13% on all capital investments.
Required:
Compute PBP, IRR, NPV and PI.
Should ECHY Co. purchase the machine?
1. Replacing worn out equipment is an example of
_______ investment.
2. ________ is sometimes called mandatory investments
on non-revenue producing products.
3. _______ is the discount rate equates the PV of future
net cash flows from an investment project with ICO.
4. _______ is the period of time required for cumulative
expected cash flows from an investment project to
equal the initial cash outflow.
5. _______ is also called benefit-cost ratio or cost-benefit ratio.
 ANSWERS
I. PROBLEM
II. IDENTIFICATION
Payback Period:
Internal Rate of Return
Net Present Value
Profitability Index
1. Replacing worn out equipment is an example of
replacement investment.
2. Investment in Safety/ Environmental Projects
is sometimes called mandatory investments
on non-revenue producing products.
3. Hurdle rate/ Discount rate is the discount rate
equates the PV of future net cash flows
from an investment project with ICO.
4. Payback Period is the period of time required for cumulative
expected cash flows from an investment project to
equal the initial cash outflow.
5. Profitability Index is also called benefit-cost ratio or cost-benefit ratio.