FastFoods Inc. is considering three new food processing machines. The details are provided below. The corporate...
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- FastFoods Inc. is considering three new food processing machines. The details are provided below. The corporate tax rate is 26%, and the interest on capital is 10%.
Particulars | Machine F1 (?) | Machine F2 (?) | Machine F3 (?) |
Initial investment | 4,50,000 | 3,50,000 | 5,50,000 |
Estimated annual sales | 6,50,000 | 6,00,000 | 7,00,000 |
Cost of production: | |||
Direct material | 55,000 | 50,000 | 65,000 |
Direct labour | 65,000 | 60,000 | 75,000 |
Factory overhead | 75,000 | 70,000 | 85,000 |
Administration cost | 30,000 | 25,000 | 35,000 |
Selling & Distribution cost | 25,000 | 20,000 | 30,000 |
- The economic life of machine F1 is 2 years, while it is 3 years for the other two. The scrap values are ?50,000, ?40,000, and ?30,000 respectively. Use the payback period method to find the best investment.
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