ILLUSTRATIVE PROBLEMS - NON DISCOUNTED TECHNIQUES

JANE BUS LINER INC. is planning to install vending machines with a cost of 300,000. It is
estimated that these vending machines will generate annual sales of 20,000 cups with price of
P10 per cup. Cash variable cost amounted to P4 cup while cash fixed cost are expected to be at
50,000 per year. The estimated economic useful life of the vending machine would be 5 years
with a salvage value of 50,000 and depreciated using straight line method. JBL Inc is subject to
20% income tax rate.

REQUIRED:
1. Determine the payback period.
2. Determine the accounting rate of return based on:
a. Original investment
b. Average investment

Jean Company purchased a new machine on January 1, 2024 for 180,000 with an estimated
useful life of 5 years and a salvage value of 10,000. The machine will be depreciated using
straight line method. The machine is expected to produce the following cash flow from
operations, net of income taxes:

YEAR AMOUNT
1 60,000
2 70,000
3 80,000
4 70,000
5 60,000
The new machine’s salvage value is 20,000 in years 1 and 2, and 15,000 in years 3 and 4.

REQUIRED:
1. Determine the payback period.
2. Determine the bail out period.