Question
STU Enterprises is planning to invest in new machinery to increase production. The details are given below. The corporate tax rate is 29%, and the
STU Enterprises is planning to invest in new machinery to increase production. The details are given below. The corporate tax rate is 29%, and the interest on capital is 10%.
Particulars | Machine X (Rs) | Machine Y (Rs) | Machine Z (Rs) |
Initial Investment | 11,00,000 | 12,00,000 | 13,00,000 |
Estimated Annual Sales | 14,00,000 | 15,00,000 | 16,00,000 |
Cost of Production: | |||
Direct Material | 1,30,000 | 1,40,000 | 1,50,000 |
Direct Labour | 1,40,000 | 1,50,000 | 1,60,000 |
Factory Overhead | 1,60,000 | 1,70,000 | 1,80,000 |
Administration Cost | 65,000 | 70,000 | 75,000 |
Selling & Distribution Cost | 55,000 | 60,000 | 65,000 |
The economic life of Machine X is 6 years, while it is 7 years for the other two. The scrap values are Rs. 1,20,000, Rs. 1,30,000, and Rs. 1,40,000 respectively. Determine the payback period for each machine to identify the best investment.
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Horngrens Accounting
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura
11th edition
978-0133851151, 013385115X, 978-0133866889
