Question
XYZ Ltd. is evaluating three new machines to enhance its production line. The details of the machines are given below. Assume a corporate tax rate
XYZ Ltd. is evaluating three new machines to enhance its production line. The details of the machines are given below. Assume a corporate tax rate of 30% and a capital interest rate of 12%.
Particulars | Machine A (Rs) | Machine B (Rs) | Machine C (Rs) |
Initial Investment | 5,00,000 | 6,00,000 | 7,00,000 |
Estimated Annual Sales | 8,00,000 | 9,00,000 | 10,00,000 |
Cost of Production: | |||
Direct Material | 70,000 | 80,000 | 90,000 |
Direct Labour | 80,000 | 90,000 | 1,00,000 |
Factory Overhead | 1,00,000 | 1,10,000 | 1,20,000 |
Administration Cost | 35,000 | 40,000 | 45,000 |
Selling & Distribution Cost | 25,000 | 30,000 | 35,000 |
The economic life of Machine A is 3 years, while it is 4 years for the other two. The scrap values are Rs. 60,000, Rs. 70,000, and Rs. 80,000 respectively. Calculate the payback period 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
