AutoParts Ltd. needs to decide between three new assembly line machines. The details are given below....
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- AutoParts Ltd. needs to decide between three new assembly line machines. The details are given below. Assume a tax rate of 24% and an interest on capital of 11%.
Particulars | Machine X1 (?) | Machine X2 (?) | Machine X3 (?) |
Initial investment | 6,00,000 | 5,00,000 | 4,50,000 |
Estimated annual sales | 7,50,000 | 6,50,000 | 6,00,000 |
Cost of production: | |||
Direct material | 60,000 | 55,000 | 50,000 |
Direct labour | 70,000 | 65,000 | 60,000 |
Factory overhead | 80,000 | 75,000 | 70,000 |
Administration cost | 35,000 | 30,000 | 25,000 |
Selling & Distribution cost | 25,000 | 20,000 | 15,000 |
- The economic life of machine X1 is 3 years, while it is 2 years for the other two. The scrap values are ?55,000, ?45,000, and ?35,000 respectively. Determine the most profitable investment using the payback period method.
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