UVW Tech wants to invest in new machinery to improve its production line. Three machines...
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Accounting
UVW Tech wants to invest in new machinery to improve its production line. Three machines are being considered. The relevant details are as follows. Assume all sales are on cash. The corporate income-tax rate is 28%. Interest on capital may be assumed to be 7%.
Particulars
Machine M(Rs)
Machine N(Rs)
Machine O(Rs)
Initial investment
2,80,000
3,00,000
3,50,000
Estimated annual sales
4,50,000
4,80,000
5,00,000
Cost of production:
Direct material
55,000
60,000
65,000
Direct labour
45,000
50,000
55,000
Factory overhead
65,000
70,000
75,000
Administration cost
18,000
20,000
22,000
Selling & Distribution cost
10,000
12,000
14,000
The economic life of Machine M is 3 years, Machine N is 4 years, and Machine O is 5 years. The scrap values are Rs.15,000, Rs.20,000, and Rs.25,000 respectively. Calculate the most profitable investment based on the payback period method
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