Question
For P450,000, Roxas Corporation purchased a new machine with an estimated useful life of five years with no salvage value.The machine is expected to produce
For P450,000, Roxas Corporation purchased a new machine with an estimated useful life of five years with no salvage value.The machine is expected to produce cash flow from operations, net of 40 percent income taxes, as follows:
First year P160,000
Second year 140,000
Third year 180,000
Fourth year 120,000
Fifth year 100,000
Roxas will use the sum-of-the-years-digits method to depreciate the new machine as follows:
First year P150,000
Second year 120,000
Third year 90,000
Fourth year 60,000
Fifth year 30,000
The present value of 1 for 5 periodsat 12 percent is 3.60478.The present values of 1 at 12 percent at end of each period are:
End of:Period 10.8928, Period 2 -0.79719,Period 3- 0.71178, Period 4- 0.63552, Period 5-0.56743
Had Roxas used straight-line method of depreciation, what is the difference in net present value provided by the machine at a discount rate of 12 percent?
A. Increase of P9,750 C. Decrease of P24,376
B. Decrease of P9,750 D. Increase of P24,376
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