Capital Budgeting

1. The Wet Corporation contemplates the replacement of an old machinery. The annual cost of operating the old machinery is P138,600, excluding depreciation, while the estimate for the new machinery is P91,300. The cost of the new machinery is P160,000, net of the trade-in allowance, with an estimated useful life of 8 years, no residual value. The effective income tax rate of 40% and the cost of capital is 8%. The old machinery has an annual deprecation of P15,000 while the new machinery is estimated to have an annual depreciation of P20,000. The book value of the old machinery is zero.

Required. Payback period. (Indicate in years. Example 3.25 years)

2. The Wet Corporation contemplates the replacement of an old machinery. The annual cost of operating the old machinery is P138,600, excluding depreciation, while the estimate for the new machinery is P91,300. The cost of the new machinery is P160,000, net of the trade-in allowance, with an estimated useful life of 8 years, no residual value. The effective income tax rate of 40% and the cost of capital is 8%. The old machinery has an annual deprecation of P15,000 while the new machinery is estimated to have an annual depreciation of P20,000. The book value of the old machinery is zero.

Required. Payback reciprocal