HealthEquip Ltd. wants to expand its equipment line and is evaluating three new machines. The relevant...
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- HealthEquip Ltd. wants to expand its equipment line and is evaluating three new machines. The relevant details are provided below. The corporate income-tax rate is 33%, and the interest on capital is 9%.
Particulars | Machine Red (?) | Machine Blue (?) | Machine Green (?) |
Initial investment | 4,50,000 | 3,70,000 | 5,20,000 |
Estimated annual sales | 6,50,000 | 6,00,000 | 7,00,000 |
Cost of production: | |||
Direct material | 55,000 | 50,000 | 60,000 |
Direct labour | 65,000 | 60,000 | 70,000 |
Factory overhead | 75,000 | 70,000 | 80,000 |
Administration cost | 30,000 | 25,000 | 35,000 |
Selling & Distribution cost | 25,000 | 20,000 | 30,000 |
- The economic life of machine Red is 3 years, while it is 2 years for the other two. The scrap values are ?50,000, ?40,000, and ?30,000 respectively. Calculate the payback period for each machine to decide the most profitable investment.
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