MAS SOLUTIONS TO PROBLEMS SOLUTIONS 2018.docx

# Relevant cost to make 50000 x p17 p 840000 less

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Relevant cost to make (50,000 x P17) P 840,000 Less desired annual savings 80,000 “Should be” net cost to buy P 770,000 Less purchase cost (50,000 x P24) 1,200,000 Minimum annual rental income P 430,000 B 47. Acquisition cost, new lathe P300,000 Less salvage value of old lathe 20,000 Net cost of investment P280,000 ÷ savings in cash operating costs (P50,000 – P200,000)150,000 Payback period 1.87 years A 48. Present value of cost savings (P150,000 x 3.1699) P475,485 Present value of salvage value (P60,000 x 0.6830) 40,980 Total PV of cash inflows P516,465 Less net cost of investment 280,000 Net present value P236,465 A

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MANAGEMENT ADVISORY SERVICES Page 8 49. Yearly net cash inflow P 45,000 x PVF, 18% for 6 years 3.4976 Initial cost of the machine P157,392 A 50. 51.Depreciation expense, as a tax shield, provides tax savings. The difference in the present values of the tax savings under the two depreciation methods will represent the difference in the net present values of the equipment. Year 1 P144,000x 32% = P46,080 0.909 P41,886.72 2 108,000x 32% = 34,560 0.826 28,546.56 3 72,000x 32% = 23,040 0.751 17,303.04 4 36,000x 32% = 11,520 0.683 7 ,868.16 Total present value of tax savings, SYD method P95,604.48 PV of tax savings, straight-line method (P360,000 ÷ 4 years = P90,000 x 32% x 3.170) 91,296.00 Decrease in net present value P 4,308.48 C 52. Indifference point is when the NPVs of the two proposals are equal. Let x = present value factor for a cost of capital for 6 years 85,000 – 25,000x =32,000 – 10,000x x = 3.533 , which is between 16% and 18% C 53. Break-even time: the cumulative present value of cash inflows equals the cost of investment Cash Inflows x PVF = PV 1 216,309.75 0.926 P200,302.83 2 216,309.75 0.857 185,377.46 3 216,309.75 0.794 171,749.94 4 216,309.75 0.735 158,987.67 5 216,309.75 0.681 147,306.94 Total PV of cash inflows, first 4 years = P716,417.90 Break even time = 4 years B 54. 55. Annual lease expense, net of tax (P65,000 x 60%)P 39,000 x PVF, 9%, 5 years 3.8897 Present value of the after-tax cost of leasingP151,698 A 56. Operating net cash inflow after tax but before lease amortization (P7,500 x 60%) P 4,500 Add tax savings due to lease amortization (P5,000 x 40%) 2,000 Net cash inflows P 6,500 x PVF 1.74 Present value P11,310 D 57. Present value of cash inflows (P7.4 m x 0.4371)P 3,234,540 Cash outflow 3,500,000 Net present value (P 265,460 ) C Cost of Preferr ed Stocks = DPS = P12 = 10.91 % D Net issuance price P120 – P10 Price = D = 1.20 = P30 C K – G 13 – 9
MANAGEMENT ADVISORY SERVICES Page 9 58. PVF of Project B is 0.4020 (4,000/9,950), which is closest to 0.4019, the PVF for 20% , five periods. C 59. Potato chips inventory – June 30 18,000 Add expected sales 80,000 Available for sale 98,000 Less Potato chips inventory – June 1 15,000 Budgeted production 83,000 x potatoes required per unit - kilos x 5 Production needs 415,000 Add Potatoes inventory – June 30 23,000 Total available for use 438,000 Less potatoes inventory – June 1 27,000 Budgeted purchases 411,000 C 60. Demand 200 Less beginning inventory 70 Production 130 B 61. Projected sales price P50 Less required profit 12 Target cost P38 C 62. A/R balance from April sales P 21,000 ÷ uncollected portion (100% - 70% - 15%) 15% April sale P140,000 D 63. Increase in inventory 3,000 ÷ 30% Sales increase for April over March 10,000 B 64. It is assumed that each unit of product requires one unit of materials. So, production is equal to raw materials to be used.

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