Assume that a project requires the purchase of a machine that cost P2 million and will cost P3 million to install. Additional working capital of P150 000 will also be required when the project is commissioned. The machine will replace an old one that was purchased two years ago at a cost of P500 000 and can now only be disposed for P200 000. The firm has claimed SIA using new rates of 50%, 25% and 25% over the last two years on the old machine. The tax rate is 35%. Required: Compute the initial investment of the project

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27-08-2022
Business

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Assume that a project requires the purchase of a machine that cost P2 million and will cost P3 million to install. Additional working capital of P150 000 will also be required when the project is commissioned. The machine will replace an old one that was purchased two years ago at a cost of P500 000 and can now only be disposed for P200 000. The firm has claimed SIA using new rates of 50%, 25% and 25% over the last two years on the old machine. The tax rate is 35%. Required: Compute the initial investment of the project

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abdulmajeedabiodunac abdulmajeedabiodunac · Answer 1 · 2022-08-31T07:35:00-04:00

The initial investment of the project is P4,950,000

What is the initial investment of the project?

The initial investment of the pthe roject refers to initial capital outlay which comprises of the cost of the new machine ,cost of installation, the additional working capital required to commence the project as well as deducting the cash proceeds of the asset that can recovered when it is scrapped as it is no longer required.

The P200 000 disposal proceeds of the old asset would finance a portion of the new machine, hence, it reduces the amount of funding that needs to be sought

the initial investment of the project=purchase cost of new machine+ cost of installation+ additional working capital- disposal proceeds of old machine

the initial investment of the project=P2,000,000+P3,000,000+P150 000- P200 000

the initial investment of the project=P4,950,000

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