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.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started