JKL Electronics plans to purchase new machinery to increase its production output. Three options are...
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JKL Electronics plans to purchase new machinery to increase its production output. Three options are under review. The relevant details are given below. Assume all sales are on cash. The corporate income-tax rate is 34%. Interest on capital may be assumed to be 10%.
Particulars | Machine D(Rs) | Machine E(Rs) | Machine F(Rs) |
Initial investment | 3,70,000 | 4,00,000 | 4,50,000 |
Estimated annual sales | 5,20,000 | 5,50,000 | 6,00,000 |
Cost of production: | |||
Direct material | 65,000 | 70,000 | 75,000 |
Direct labour | 50,000 | 55,000 | 60,000 |
Factory overhead | 80,000 | 85,000 | 90,000 |
Administration cost | 18,000 | 20,000 | 22,000 |
Selling & Distribution cost | 12,000 | 14,000 | 16,000 |
The economic life of Machine D is 5 years, Machine E is 4 years, and Machine F is 6 years. The scrap values are Rs.25,000, Rs.30,000, and Rs.35,000 respectively. Calculate the most profitable investment based on the payback period method.
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