Question
DEF Industries is considering purchasing one of three machines to upgrade its manufacturing capabilities. The following information is available. The corporate tax rate is 25%,
DEF Industries is considering purchasing one of three machines to upgrade its manufacturing capabilities. The following information is available. The corporate tax rate is 25%, and the interest on capital is 9%.
Particulars | Machine X (Rs) | Machine Y (Rs) | Machine Z (Rs) |
Initial Investment | 6,00,000 | 7,00,000 | 8,00,000 |
Estimated Annual Sales | 9,00,000 | 10,00,000 | 11,00,000 |
Cost of Production: | |||
Direct Material | 80,000 | 90,000 | 1,00,000 |
Direct Labour | 90,000 | 1,00,000 | 1,10,000 |
Factory Overhead | 1,10,000 | 1,20,000 | 1,30,000 |
Administration Cost | 40,000 | 45,000 | 50,000 |
Selling & Distribution Cost | 30,000 | 35,000 | 40,000 |
The economic life of Machine X is 5 years, while it is 6 years for the other two. The scrap values are Rs. 70,000, Rs. 80,000, and Rs. 90,000 respectively. Determine the payback period for each machine and recommend the best option.
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Horngrens Accounting
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura
11th edition
978-0133851151, 013385115X, 978-0133866889
