question archive Great Value Company is planning to purchase a new machine costing P50,000 with freight and installation costs amounting to P1,500
Great Value Company is planning to purchase a new machine costing P50,000 with freight and installation costs amounting to P1,500
Subject:LawPrice:3.87 Bought7
Great Value Company is planning to purchase a new machine costing P50,000 with freight and installation costs amounting to P1,500. The old unit is to be traded-in will be given a trade-in allowance of P7,500. Other assets that are to be retired as a result of the acquisition of the new machine can be salvaged and sold for P3,000. The loss on retirement of these other assets is P1,000 which will reduce income taxes of P400. If the new equipment is not purchased, repair of the old unit will have to be made at an estimated cost of P4,000. This cost can be avoided by purchasing the new equipment. Additional gross working capital of P12,000 will be needed to support operation planned with the new equipment. The net investment assigned to the new machine for decision analysis is
a.
P52,600
b.
P53,600
c.
None of the above
d.
P57,600
e.
P50,200
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Answer:
Based on the information available in the question, we can answer as follows:-
| Particulars | Amount |
| Cost of new machine | 50,000 |
| Freight & Installatino costs | 1,500 |
| Less:- Trade in allowance | (7,500) |
| Less:- Salvage value of of other assets | (3,000) |
| Less:- Income tax savings | (400) |
| Gross working capital addition | 12,000 |
| Cost of new equipment | 52,600 |
Based on the above calculations, the correct answer is Option A - $52,600.
Option B, Option C, Option D and Option E are incorrect per the above calculations and considerations.
