LMN Industries intends to purchase a machine to expand its production capacity. Three options are...
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LMN Industries intends to purchase a machine to expand its production capacity. Three options are being evaluated. The relevant details including estimated yearly expenditure and sales are as follows. Assume all sales are on cash. The corporate income-tax rate is 33%. Interest on capital may be assumed to be 10%.
Particulars | Machine P(Rs) | Machine Q(Rs) | Machine R(Rs) |
Initial investment | 3,20,000 | 3,50,000 | 3,80,000 |
Estimated annual sales | 5,50,000 | 5,80,000 | 6,00,000 |
Cost of production: | |||
Direct material | 60,000 | 55,000 | 65,000 |
Direct labour | 50,000 | 45,000 | 55,000 |
Factory overhead | 75,000 | 70,000 | 80,000 |
Administration cost | 18,000 | 16,000 | 20,000 |
Selling & Distribution cost | 10,000 | 9,000 | 11,000 |
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