The management of ELISA Company plans to replace a sorting machine that was acquired several years ago at a cost of P850,000. The machine has been depreciated to its salvage value of P90,000. A new sorter can be purchased for P2,940,000, 3/10, n/30. The dealer will grant a trade-in allowance of P176,000 on the old machine. If a new machine is not purchased, Elisa will spend P745,000 to repair the old machine. Gains and losses on trade-in transactions are not subject to income tax. The cost to repair the old machine can be deducted in the first year for computing income tax. Income tax is estimated at 40% of the income subject to tax. What is the net investment assigned to the new machine?

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To calculate the net investment assigned to the new machine we need to consider the cost of the new ... View the full answer