AT THE BEGINNING OF THE YEAR, DJORN CORPORATION PURCHASED A...

48. At the beginning of the year, Djorn Corporation purchased a new equipment for P360,000. The

machine has an estimated useful life of four (4) years with no salvage value. It is expected to produce

cash flows from operations, net of income taxes of 32%, as follows:

Year 1 P128,000

2 112,000

3 144,000

4 96,000

5 80,000

Djorn Corporation uses the sum-of-the-years-digits method (SYD) in computing depreciation of its

depreciable assets. Using SYD, the new equipment will be depreciated as follows:

Year 1 (P360,000 x 4/10) P144,000

2 (P360,000 x 3/10) 108,000

3 (P360,000 x 2/10) 72,000

4 (P360,000 x 1/10) 36,000

The company’s cost of capital is 10%. The present value factors at 10% are as follows:

End of Year 1 0.909

2 0.826

3 0.751

4 0 .683

Total, 4 years 3 .170

If Djorn Corporation used the straight-line method of depreciation instead of the SYD method, the net

present value provided by the equipment would increase (decrease) by:

a. P13,464 c. (P4,308.48)

b. (P13,464) d. P4,308.48