 The management of Kobe Company plans to replace a

sorting machine that was acquired several years ago at a

cost P500,000. The machine has been depreciated to its
salvage value of P10,000. A new sorter can be purchased for
P600,000. The dealer will grant a trade-in allowance of
P60,000 on the old machine. If a new machine is not
purchased, Kobe company will spend P200,000 to repair the
old machine. Income tax is 30% of the income subject to tax.

 REQUIRED:
 1. Compute the net investment in the new machine for
decision making purposes.
 2. Assume that instead of trading in the old machine, the
same is sold for P50,000. Assume also that the acquisition of
the new machine will require additional investment in working
capital of P40,000. What will be the cost of the new machine
for decision making purposes.
 Old equipment with a book value of P15,000 will
be replaced by new equipment with a purchase
rpice of P50,000, exclusive of freight charges of
P2,000. The market value of the old equipment is
P11,000. Repair costs of P2,000 can be avoided if
the new equipment is acquired. Assume a tax rate
of 35%. What is the initial (net) investment of the
project?
 Bryant Company is considering replacing a
machine with a book value of P400,000, a
remaining useful life of 5 years, and annual
straight-line depreciation of P80,000. The existing
machine has a current market value of P400,000.
The replacement machine would cost P550,000,
have a 5-year life and save P75,000 per year in
cash operating costs. If the replacement machine
would be depreciated using straight-line method
and the tax rate is 40%, what would be the new
investment required to replace the existing
machine?
 Tim Inc. is considering an investment of P1M in a
new machine that will be used to produce a new
product. The machine is expected to have a useful
life of ten years, with no salvage value at the end
of its life. A selling price of P50 per unit is decided
upon for the new product; unit variable cost is
P20, and fixed operating costs, excluding
depreciation are estimated at P300,000 per year.
The sales division believes that a sales estimate
of 20,000 units per year is realistic. Income tax is
estimated at 30% of income before tax.
 REQUIRED:
 Annual net cash inflows and net returns (net
income)
 A company is considering replacing a machine
with one that will save P50,000 per year in cash
operating costs and has P20,000 more
depreciation expense per year that the existing
machine. The tax rate is 40%. Buying the new
machine will increase annual net cash flows of the
company by?
 Duncan Company is considering replacing a
machine with a book value of P200,000, a
remaining useful life of 5 years, and annual
straight-line depreciation of P40,000. The existing
machine has a current market value of P200,000.
The replacement machine would cost P300,000,
have a 5-yearlife, and save P100,000 per year in
cash operating costs. The replacement machine
would be depreciated using the straight-line
method and tax rate is 40%. What would be the
increase in annual net cash flow if the company
replaces the machine?