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JTECH Corporation bought a PLC machine 10 years ago for P 900,000 with an expected life of 20 years. The management anticipates now that the machine will serve well for another 6 years and proposes to purchase a new machine costing P 1,200,000 with an expected life of 16 years. The old machine is depreciated as anticipated by the straight line method and can be sold now for P 600,000. The annual operating cost of the old machine is P 10,000 and for the new machine is P 5,000. The salvage value of both machines is 10% of its value regardless of the length of time they are used. If money is worth 15% to the company, should the old machine be replaced?

Using ROR method,

1. The depreciation cost for the old machines is

a. P 90,000.00 b. P 61,687.93 c. P 150,000.00 d. P 100,000.00

2. The depreciation cost for the new machine is

a. P 180,000.00 b. P 75,000.00 c. P 67,500.00 d. P 19,383.51

3. Total annual cost for the old machines is

a. P 160,000.00 b. P 71,687.93 c. P 110,000.00 d. P 100,000.00

4. Total annual cost for the new machine is

a. P 85,332 b. P 57,332.55 c. P 72,500.00 d. P 65,932.55

5. Do we need to solve for ROR_AI? If yes, what is ROR_AI?

a. NO b. 4.58% c. 62.22% d. 15.96%

Using AC method,

6. The annual cost for the old machines is

a. P 250,000.00 b. P 161,687.93 c. P 190,000.00 d. P 200,000.00

7. The annual cost for the new machine is

a. P 252,500.00 b. P 260,000.00 c. P 204,383.51 d. P 90,500.00

8. Would you recommend the replacement?

a. NO b. YES c. MAYBE d. I dont know

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