Rainbow Company is considering replacing its old equipment with a new one. The old equipment has a net book value of P100,000 and remaining useful life of 4 years with depreciation of P25,000 per year. The old equipment can be sold at P70,000. Should the company decide not to acquire the new machine costing P190,000, it needs to repair the old one at a cost of P10,000. Acquiring the new machine will generate cash savings on operating expenses before tax of P50 000 per year and the new machine will be depreciated over 4 years straight-line with salvage value of P10,000. The new machine will also require a working capital of P10,000. At the end of the useful life of the new equipment, it can be sold for P5,000. The cost of capital of the company is 8%. The effective corporate income tax rate Is 35%.

Required:

1. What is the initial investment for the new equipment?
2. What is the annual operating cash flow from the purchase of the new equipment?
3. What is the terminal cash flow of the new equipment?
4. Assuming required working capital will not be released at the end of the life of the new machine and that It will not be sold, how much is the terminal cash flow?
5. Using the assumption in number 4, compute for the following:
   1. Payback period
   2. Accounting rate of return on average investment
   3. Net present value
   4. Profitability index
   5. Internal rate of return