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A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is Php1.9 million plus Php100,000
A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is Php1.9 million plus Php100,000 in installation costs. The firm will depreciate the equipment under the Sum of Year's Digits (SYD) method using a 6-year useful life and no salvage value. Additional sales revenue from the renewal should amount to Php1.2 million per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 40% of the additional sales. The firm is subject to a tax rate of 40%. (Note: Answer the following questions for each of the next 6 years.) 1. What incremental earnings before depreciation, interest, and taxes will result from the renewal? 2. What incremental net operating profits after taxes will result from the renewal? 3. What incremental operating cash inflows will result from the renewal?
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