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TOPIC: CAPITALBUDGETING Fermin Company plans to replace its machinery with a new one costing P2,000,000 with an estimated useful life of ten years without scrap

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TOPIC: CAPITALBUDGETING Fermin Company plans to replace its machinery with a new one costing P2,000,000 with an estimated useful life of ten years without scrap value. The old machinery has a book value of P200,000 and can be sold for P150,000. The acquisition of the new machinery will yield an annual cash savings of P450,000 before income tax. Income tax rate is 35%. Required: Compute the following: 1. Net investment on the new machine 2. Net income (aftertax) 3. Annual net cash inflows expected from the new machine 4. Payback period 5. Accounting rate of return based on: a. Original investment b. Average investment

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