Giangelo Corporation would like to venture in manufacturing a specialized tool that is required by a semi-conductor company. In order to accomplish this, it is considering two options that both require raising large amount of funds. First option (Project X) is the construction of a factory building and acquisition of machineries for an estimated cost of P30 million. The other alternative (Project Y) is the acquisition of an existing company that manufactures the same tool at a price of P50 million

In order to fund the project, the Company will have to apply for a loan from a bank and issue shares of stocks. The management contemplated a more leverage approach by availing the 70% of the financial requirements through loan borrowing and the rest from the issuance of shares. The interest on bank loan is at 11% per annum while the issuance of share will require return to stockholder at 8% per annum. The application income tax rate 25%.

Both of the project will have estimated life of 10years with no salvage value. The following are the information on the related revenues and expenses of the two projects Project X Project Y Annual Revenue P 20,000,000 P 30,000,000 Annual cash flow and expenses (Excluding interest) P12,700,000 P 18,000,000 What is the Cash payback period