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1. THE PRIMARY OBJECTIVE OF ANY FIRMS IS TO MAKE PROFITS. EVERY BUSINESS ACTIVITY SHOULD...

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Accounting

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1. THE PRIMARY OBJECTIVE OF ANY FIRMS IS TO MAKE PROFITS. EVERY BUSINESS ACTIVITY SHOULD ALWAYS BE DIRECTED TOWARDS THIS END. CAPITAL INVESTMENTS ARE NOT EXEMPTED FROM THIS REQUIREMENT. THEREFORE, A REQUIREMENT THAT INVESTMENT PROPOSALS SHOULD BE ANALYZED AND A DETERMINATION OF THEIR ECONOMIC VALUE TO THE FIRM SHOULD BE MADE. THERE ARE METHODS TO EVALUATE INVESTMENT PROPOSALS: 1.1. PAYBACK 1.2. RATE OF RETURN 1.3. DISCOUNTED CASH FLOW INVESTMENT PROPOSAL TO PURCHASE A MACHINE ACQUISITIO COST P10,000,000.00 ECONOMIC LIFE 10 YRS. SALVAGE VALUE 100,000.00 EARNINGS AND COST/YR INCOME 5,000,000.00 EXPENSES 2,000,000.00 NET INCOME BEFORE TAX AND 3,000,000.00 DEPRECIATION LESS: DEPRECIATION (STRAIGHT METHOD) 1,000,000.00 NET INCOME BEFORE TAX 2,000,000.00 LESS: INCOME TAX. 620,000.00 AVERAGE NET ANNUAL EARNINGS 1,320,000.00 CASH INFLOW00,00000,000S PER YEAR= NET EARNINGS+DEPRECIATION=p2,380,000.00 1.4. EVALUATE AND DETERMINE IF THE PROPOSAL IS FEASIBLE BY APPLYING THE ABOVE MEHTODS

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