SW \#1 Finals PROBLEM 1 Superior Shipping Line is planning to purchase a new Ship Costing 300 million pesos. The following are the financial data: - Ship capacity 2,000 passengers - Estimated useful life of 10 year - Salvage value of 40 million pesos - Voyage year is 360 days per year - 80% occupancy rate for the entire ship - Revenue - Php 250 per passenger per day - Variable cost - Php 100 per passenger per day - Annual fix cost of this capital investment project is 20 million per year (exclusive of depreciation) - Tax Rate applicable, 32% Compute for: 1) Net Income after tax 2) Net cash flow 3) Payback period 4) Accept or Reject? Assuming that expected payback period for this type of investment is 6.5 years 5) Accounting rate of return based on initial investment 6) Accounting rate of return based on average investment 7) Accept or reject? Assuming that management is expecting ARR based on initial investment of at least 6.2% PROBLEM 2 KOHEY Company is considering buying new truck to replace the old truck. New truck cost P2,000,000. With useful life of 5 years. If new truck is purchased, old truck will be sold at P400,000. The old truck was acquired for P1,200,000 and has current book value of 500,000 . If new truck is not purchased, company will have to continue using the old truck, although extensive repairs would be needed costing 200,000 . The income tax rate applicable is 30% Compute for the: 8) Initial investment 9) If company is only willing to appropriate a budget amounting to P980,000 for this type of project, will they proceed with the purchase? 10) Compute for the Payback period assuming the following returns are expected from the purchase of new truck: Net cash flow (before tax) Year 1900,000 Year 21,250,000 Year 31,300,000 Year 41,500,000 Year 51,600,000