0 ratings0% found this document useful (0 votes) 47 views1 pageChapter 13 - Problem 5
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Problem 5
1, The net annual cost savings is computed as follows:
Reduction in labor costs
240,000,
Reduction in material costs, 96,000
Total c0st redUCONS enn 336,000
Less increased maintenance costs (P4,250 x 12) 51,000
Net annual cost savings. 285,000,
2. Using this cost savings figure, and other data provided in the text, the net present value analysis i:
“Amount of Cash Present Valve of
Yeas) Flows 16% Factor Cash Fows
(Cos ofthe machine. . Now P1800,000) 11000 (900,00)
Instalation and sofware. Now (650,000) 1.000 (650.000)
Saluago ofthe old mach. Now 70.000 © 1.000 70000
Annual cost savings. +410 265.000 4.400 11280,790
(Overhaul equred. 6 (90,000) 0370 (3200)
Salvage ofthe new machine. 10 P1000 191 40.10
Net present value (192,400)
No, the etching machine should not be purchased. It has a negative net present value at an 18%
discount rate
The intangible benefits would have to be worth at least P42.813 per year as shown below:
Required increase in net present value PI92,400 = py 615
Factor for 10 years 4494 2
Thus, the new etching machine should be purchased if management believes that the intangible
benefits are worth at least P42,813 per year to the company.
