Question 1

Short questions
Question 2
Company X is considering replacing an old inventory management system with an automated
system that costs $ 240,000. This system will be fully depreciated over 4 years, the liquidation
price expected at the end of year 4 is $ 2000. If installed this system will save $ 50,000 (before
tax) on inventory management costs. Corporate income tax is 20%. Because of its automated
inventory management system, it will make a decrease of $ 50,000 in company X's investment in
current assets. Should Company X replace the old system?
Note that: The old system has a carrying amount of $ 80,000, and the net market price is $
75,000. If the company buys a new system, it will sell the old system. If still in use, the old
system will be fully depreciated for the remaining 4 years and will be disposed of at $500 at the
end of year 4. The discount rate of the company is 12%.
Question 3
Company A is considering buying 1 of 2 machines with the same function. Machine A costs 102
mil dong and the annual operating cost is 12 mil dong, but every 2 years, it must be replaced.
The machine is fully depreciated in 2 years, the net liquidation price is expected to be 2 million
dong at the end of year 2. Machine B costs 147 million and the annual operating cost is 8
million, but every 3 years must be replaced. The machine is fully depreciated in 3 years, and the
net liquidation price expected at the end of year 3 is 5 million. Corporate income tax is 20%,
which machine should the company buy? Note that the discount rate is 10%
Required:
1. Using the EAA (equivalent annual annuity) approach, give recommendations for the company.
2. Using the Replacement chain approach, give recommendations for the company.
Question 4
Company A plans to invest in the production of refractory bricks. Equipment and factory are
invested once. The project life cycle follows the depreciation time of equipment: 5 years. The
total investment of the project is owner's equity. Investment in factory 2,300,000,000 VND.
Equipment is as follows (unit: VND).
No Equipment Price
1 400 ton - Press Machine 650,000,000
2 Vertical crusher 210,000,000
3 Mixer + grinder 38,000,000
4 Kiln Dryers + Blast Furnaces 92,000,000
 5 Electrical equipment 40,000,000
6 Computers 24,000,000
7 Mold tools + scale 121,000,000
8 New 1500-ton press machine (Korea) 1,210,000,000
9 Forklift 90,000,000
10 Construction of the 25 tons- kiln 950,000,000
11 The installation cost of the transfer 70,000,000
12 Medium voltage and 3-phase power system 224,000,000

Variable cost per ton of finished brick (unit: VND): Cost of raw materials is 920,000; Direct
labor cost is 348,000; Workshop cost is 200,000; The other cost is 150,000.
The fixed cost of management (excluding depreciation) for one year is VND 350 million.
Equipment is fully depreciated for a period of 5 years. The factory is fully depreciated for a
period of 7 years. The net liquidation price of the factory at the end of year 5 is equal to 90% of
the carrying amount. The liquidation price of machinery is negligible.
Production and consumption capacity is expected to be 2010 tons/year, of which the volume in
the first year is 80% of the capacity, the volume in the second year is 90% of the capacity, and
from the third year, the volume is 100% of the capacity. The selling price is 2,890,000 VND /
ton (without VAT). Corporate income tax 20%.
Requirements:
1. Prepare the income statement of the project.
2. Calculate the net cash flow of the project each year (ignoring the impact of VAT).
3. Calculate the NPV of the project with an average annual cost of equity of 12%.