Problem 1 In order to increase production capacity, Tulip Inc. is considering replacing an existing production machine with a new technologically improved machine effective January 1. The following information is being considered by Tulip. The new machine would be purchased for P 1,600,000. Terms 2/10,n/30. Shipping and installation cost an additional P 332,000. The new machine is expected to increase annual sales by 200,000 at a sales price of P 40 per unit. Incremental operating costs include P 30 per unit in variable costs and total fixed costs of P 400,000 per year. The investment in the new machine will require an immediate increase in working capital of P 350,000. This cash outflow will be recovered at the end of year 5. Tulip uses straight line depreciation for financial reporting and tax reporting purposes. The new machine has an estimated useful life of 5 years and zero salvage value. Tulip is subject to 40% corporate income tax rate and its cost of capital is 10% Required: 1. Determine the net investment and annual cash inflow. 2. Compute the following a. Payback period b. Payback reciprocal c. Accounting rate of return based on original investment d. Net present value e. Profitability index