Capital Budgeting

Part 2 - Computation of Cash Flows: Two project proposals are submitted to you for analysis and recommendation: Project A: A new machine to manufacture new product submitted by Production Dept. The machine costP180,000 with estimated life of 6 years with salvage value of P50,000 to be depreciated using straight line method. Freight and installation cost estimated to be P35,000. This machine can be sold for P45,000 after its estimated life. With this machine, P125,000 sales will be generated and a cash expenses of P55,000 will be incurred. Expected rate of return of the project is 13%. Project B: Computer units submitted by the Admin Department The cost of the package is P120,000 with an estimated life of 4 years, with no salvage value. The computers will be depreciated using SYD. After its estimated life, the units can be sold for P20,000. With this computers, the accounting dept. estimated a yearly savings of P80,000. Installation and training costs amounted to P15,000 and there will an increase in supplies inventories amounting to P10,000. Expected rate of return of this project is 15%. The VP Finance is interested to know the necessary cash flows of the two project proposals. The corporation is subjected to 25 percent tax rate