DEF Enterprises plans to upgrade its production line by purchasing a new machine. Three machines are being considered. The details of estimated yearly expenditure and sales are provided below. All sales are on cash basis. Corporate income-tax rate is 38%. Interest on capital may be assumed to be 7%.

Particulars	Machine 1 (Rs)	Machine 2 (Rs)	Machine 3 (Rs)
Initial investment	3,50,000	4,00,000	3,75,000
Estimated annual sales	5,50,000	6,00,000	5,75,000
Cost of production:
Direct material	45,000	50,000	48,000
Direct labour	55,000	60,000	57,000
Factory overhead	65,000	70,000	68,000
Administration cost	22,000	24,000	23,000
Selling & Distribution cost	14,000	16,000	15,000

The economic life of machine 1 is 3 years, while it is 2 years for the other two. The scrap values are Rs. 45,000, Rs. 55,000 and Rs. 50,000 respectively. Determine the most profitable investment based on the payback period method.