Question
PQR Inc. is evaluating three new machines to increase production efficiency. The relevant financial details are provided below. The corporate tax rate is 33%, and
PQR Inc. is evaluating three new machines to increase production efficiency. The relevant financial details are provided below. The corporate tax rate is 33%, and the interest on capital is 9%.
Particulars | Machine A (Rs) | Machine B (Rs) | Machine C (Rs) |
Initial Investment | 10,00,000 | 11,00,000 | 12,00,000 |
Estimated Annual Sales | 13,00,000 | 14,00,000 | 15,00,000 |
Cost of Production: | |||
Direct Material | 1,20,000 | 1,30,000 | 1,40,000 |
Direct Labour | 1,30,000 | 1,40,000 | 1,50,000 |
Factory Overhead | 1,50,000 | 1,60,000 | 1,70,000 |
Administration Cost | 60,000 | 65,000 | 70,000 |
Selling & Distribution Cost | 50,000 | 55,000 | 60,000 |
The economic life of Machine A is 5 years, while it is 6 years for the other two. The scrap values are Rs. 1,10,000, Rs. 1,20,000, and Rs. 1,30,000 respectively. Calculate 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
