LUMA dairy, a start-up, did a market research and found that there is huge de- mand for dairy products in India, but the market is under-served. The management of LUMA is also pretty condent that it is less likely for India to sign the RCEP with countries in Asia-Pac region and hence there is no threat to the rm's going concern status. Otherwise, dairy products from New Zealand would have given sti competition to Indian products and would have threatened the projected margins of LUMA. In addition, the new corporate tax regime has slashed the corporate in- come tax for new companies to 15%. The investors of LUMA is expecting a return of 15% on the investment. LUMA has two options in terms of the equipment used for the pasteurisation pro- cess. One, a German made machine that costs |500 crores and has a useful life of 2 years. The post-tax operating costs (including depreciation tax shield) of the German machine is |150 and |200 crores respectively for the two years. The second is a Japanese machine that costs |700 crores and has a useful life of 3 years. The pre-tax operating costs (excluding depreciation) of the Japanese machine is |100, |150 and |200 crores respectively for the three years. Both machines are depreci- ated to zero using straight-line method. LUMA has approached you as part of the student consulting program and this problem was assigned to FAMV students. Which machine should LUMA dairy choose ? During the session, you have been taught the present value of the annuity factor formula and you are contemplating to apply that learning in this question.

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