MANAGEMENT ACCOUNTING & CONTROLLERSHIP CAPITAL BUDGETING Learning Activity 1. Capital Budgeting Techniques Problem 1. Magtibay, Inc. is planning to acquire a new machine at a total cost of Php 360,000. The estimated life of the machine is six years with no salvage value. The straight-line method of depreciation will be used. Magtibay estimates that the annual cash flow from operations, before income taxes, from using the machine amounts to Php 90,000. Assume that Magtibay's cost of capital is 8% and the income tax rate is 40%. The present vale of Pl at 8% for 6 years is 0.630. The present value of an annuity of Pl in arrears at 8% for 6 years is 4.623. a. What would be the payback period for the machine? b. What would be the net present value?Problem 2. Tipan's Company is planning to invest Php 40,000 in a 3-year project. Tipan's expected rate of return is 10%. The present value of Pl at 10% for 1 year is .909, for 2 years is .826 and for 3 years is .751. The cash flow net of income taxes will be Php 15,000 for the ist year (PV of Php 13,635) and Php 18,000 for the 2"d year (PV of Php 14,868). Assuming the rate is exactly 10%, what would the cash flow, net of income taxes be for the 3"d year? Problem 3. Malipol Books is considering the purchase of a new binding equipment that will reduce operating costs. The cost of the equipment will be Php 70,000, which will be depreciated straight line over 5 years to a zero-salvage value. Sales are expected to increase Php 65,000 per year, with an expected cash flow eamings before depreciation and taxes/sales ratio of 60%. What is the expected after-tax cash flows from the project if the tax rate is 409%