2. Sun-Light Manufacturing Corporation needs to overhaul its drill press or buy a new one.

The facts have been gathered, and they are as follows:

Current Machine New Machine

Purchase Price, New P80,000 P100,000

Current book value 30,000

Overhaul needed now 40,000

Annual cash operating costs 70,000 40,000

Current salvage value 20,000

Salvage value in five years 5,000 20,000

Required:

Which alternative is the most desirable with a current required rate of return of 20%? Show

computations to support your recommendation, and assume no taxes.