CAPITAL BUDGETING 1. Net cost of investment. The management of True-Life Company plans to replace a sorting machine that was acquired several years ago at a cost of P120.000. The machine has been depreciated to its salvage value of P12,000. A new sorter can be purchased for P140,000. The dealer will grant a trade-in allowance of P7,000 on the old machine. Ifa new machine is purchased, True-Life will spend P25,000 to repair the old machine Gains and losses on trade-in transactions are not subject to income tax. The cost to repair the old machine can be deducted in the first year for computing income tax Income tax is estimated at 40% of the income subject to tax. Required: The net investment assigned to the new machine for decision analysis. 2. Net cost of investment. Tingaling Corporation is planning to purchase a new machine costing P4.800,000, freight and installation costs amounting to P45,000. The old unit will be given a trade-in allowance of P200.000. Other assets that are to be retired as a result of the acquisition of the new machine can be salvaged and sold for P12,000. The loss on the retirement of these other assets amounting to P20,000 will reduce taxes by P8,000. If the new machine is not purchased, extensive repairs on the old machine will have to be made at an estimated cost of P400,000. This cost can be avoided by purchasing the new machine. Additional gross working capital of P350,000 will be needed to support operations planned with the new machine. Required: The net investment assigned to the new machine for decision analysis. 3. Net cost of investment. The Mabuhay Corporation plans to acquire a new equipment costing P900,000 to replace the equipment that is now being used. Freight charges on the new equipment are estimated at P25.000 and it will cost P22,000 to install. Special attachments to be used with this unit will be needed and will cost P55.000. If the new equipment is acquired, operations will be expanded and this will require additional working capital of P110,000, The old equipment has a net book value of P60,000 and will be sold for P22,000. If the new equipment is not purchased the old equipment must be overhauled at a cost of P120,000. This cost is deductible for tax purposes in the year incurred. Tax rate is 25%. Required: Compute the net investment in the new equipment for decision making purposes. CAPITAL BUDGETING 1. Net cost of investment. The management of True-Life Company plans to replace a sorting machine that was acquired several years ago at a cost of P120.000. The machine has been depreciated to its salvage value of P12,000. A new sorter can be purchased for P140,000. The dealer will grant a trade-in allowance of P7,000 on the old machine. Ifa new machine is purchased, True-Life will spend P25,000 to repair the old machine Gains and losses on trade-in transactions are not subject to income tax. The cost to repair the old machine can be deducted in the first year for computing income tax Income tax is estimated at 40% of the income subject to tax. Required: The net investment assigned to the new machine for decision analysis. 2. Net cost of investment. Tingaling Corporation is planning to purchase a new machine costing P4.800,000, freight and installation costs amounting to P45,000. The old unit will be given a trade-in allowance of P200.000. Other assets that are to be retired as a result of the acquisition of the new machine can be salvaged and sold for P12,000. The loss on the retirement of these other assets amounting to P20,000 will reduce taxes by P8,000. If the new machine is not purchased, extensive repairs on the old machine will have to be made at an estimated cost of P400,000. This cost can be avoided by purchasing the new machine. Additional gross working capital of P350,000 will be needed to support operations planned with the new machine. Required: The net investment assigned to the new machine for decision analysis. 3. Net cost of investment. The Mabuhay Corporation plans to acquire a new equipment costing P900,000 to replace the equipment that is now being used. Freight charges on the new equipment are estimated at P25.000 and it will cost P22,000 to install. Special attachments to be used with this unit will be needed and will cost P55.000. If the new equipment is acquired, operations will be expanded and this will require additional working capital of P110,000, The old equipment has a net book value of P60,000 and will be sold for P22,000. If the new equipment is not purchased the old equipment must be overhauled at a cost of P120,000. This cost is deductible for tax purposes in the year incurred. Tax rate is 25%. Required: Compute the net investment in the new equipment for decision making purposes