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VWX Ltd. is considering the purchase of new machines to enhance production capabilities. The relevant financial details are outlined below. Assume a corporate tax rate

VWX Ltd. is considering the purchase of new machines to enhance production capabilities. The relevant financial details are outlined below. Assume a corporate tax rate of 34% and a capital interest rate of 8%.

Particulars

Machine 1 (Rs)

Machine 2 (Rs)

Machine 3 (Rs)

Initial Investment

12,00,000

13,00,000

14,00,000

Estimated Annual Sales

15,00,000

16,00,000

17,00,000

Cost of Production:




Direct Material

1,40,000

1,50,000

1,60,000

Direct Labour

1,50,000

1,60,000

1,70,000

Factory Overhead

1,70,000

1,80,000

1,90,000

Administration Cost

70,000

75,000

80,000

Selling & Distribution Cost

60,000

65,000

70,000

The economic life of Machine 1 is 4 years, while it is 5 years for the other two. The scrap values are Rs. 1,30,000, Rs. 1,40,000, and Rs. 1,50,000 respectively. Calculate the payback period to determine the best investment option.

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