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Group Iii
Group Iii
Although the old tools being used by Pan Company are now
fully depreciated, they have a salvage value of P45,000.
These tools will be sold if the new tools are purchased;
however if the new tools are not purchased, then the old
tools will be retained as standby equipment. The Company’s
accounting department has confirmed that total fixed
manufacturing overhead costs, other than depreciation, will
not change regardless of the decision made concerning the
valves. However, the accounting department has estimated
that working capital needs will increase by P60,000 if the new
tools are purchased due to the higher quality of material
required in the manufacture of the valve stems.
The present values of 1 at the end of each period
using 12% are:
Period 1 0.89286
Period 2 0.79719
Period 3 0.71178
Period 4 0.63552
PV of annuity of 1, 4 periods 3.03735
Required: COMPUTE
1. Net investment in new tools
TOTAL P2,011,110
TOTAL P2,011,110
TOTAL P2,011,110