percent. Exercise 6 (Basic Net Present Value and Internal Rate of Return Aulysis) (Ignore income taxes.) Consider each case below independently. 1. Edward Company's required rate of return is 15%. The company can purchase a new machine at a cost of P40,350. The new machine would generate cash inflows of P15,000 per year and have a four-year life with no salvage value. Compute the machine's net present value. Is the machine an acceptable investment? Explain. 2. Isabella Products, Inc., is investigating the purchase of a new grinding machine that has a projected life of 15 years. It is estimated that the machine will save P20,000 per year in cash operating costs. What is the machine's internal rate of return if it costs PI 1 1,500 new? 3. Nessie Press has just purchased a new trimming machine that cost P14,125. The machine is expected to save P2,500 per year in cash operating costs and to have a 10-year life. Compute the machine's internal rate of return. If the company's required rate of return is 16%, did it make a wise investment? Explain.be Chapter 20 Exercise Exercise 1 (Simple Rate of Return Method) The management of Ann Gee MicroBrew is considering the purchase of an automated bottling machine for P80,000. The machine would replace an old piece of equipment that costs P33.000 per year to operate. The new machine would cost P10.000 per year to operate. The old machine currently in use could be sold now for a scrap value of P5,000. The new machine would have a useful life of 10 years with no salvage value. Required: Compute the simple rate of return on the new automated bottling machine. Exercise 2 (Basic Present Value Concepts) Each of the following parts is independent. (Ignore income taxes.) 1. Amano Freightlines plans to build a new garage in three years to have more space for repairing its trucks. The garage will cost P400,000. What lump-sum amount should the company invest now to have the P400,000 available at the end of the three-year period? Assume that the company can invest money at: a. Eight percent. b. Twelve percent. 2. Lorna Products, Inc., can purchase a new copier that will save P5,000 per year in copying costs. The copier will last for six years and have no salvage value. What is the maximum purchase price that Lorna Products would be willing to pay for the copier if the company's required rate of return is: a. Ten percent? b. Sixteen percent? 3. Tom has just won the million-peso slot machine jackpot at a gambling casino. The casino will pay her P50,000 per year for 20 years as the payoff. If Tom can invest money at a 10%% rate of return, what is the Explain. present value of her winnings? Did she really win a million pesos?Capital Budgeting Decisions 813 Exercise 3 (After-Tex Costs) Solve each of the following parts independently: a. Sugar Company has hired a management consulting firm to review and make recommendations concerning Sugar's organizational structure. The consulting firm's fee will be P100,000. What will be the after-tax cost of the consulting firm's fee if Sugar's tax rate is 30%? b. The Royal Riding Club has redirected its advertising toward a different sector of the market. As a result of this change in advertising. the club's annual revenues have increased by P40,000. If the club's tax rate is 30%, what is the after-tax benefit from the increased revenues? c. The Sparkling Stars Basketball Team has just installed an electronic scoreboard in its playing arena at a cost of P210,000. For tax purposes. the entire original cost of the electronic scoreboard will be depreciated over seven years, using the straight-line method. Determine the yearly tax savings from the depreciation tax shield. Assume that the income tax rate is 30%. Exercise 4 (Basic Net Present Value Analysts) On January 2, Pebbles Cruz paid P18,000 for 900 ordinary shares of Rainbow Company. Ms. Cruz received an P0.80 per share dividend on the shares at the end of each year for four years. At the end of four years, she sold the share for P22,500. Ms. Cruz has a goal of earning a minimum return of 12%% on all of her investments. Required: (Ignore income taxes.) Did Ms. Cruz carn a 12% return on the share? Use the net present value method and the general format. Round all computations to the nearest whole peso