ABC Manufacturing Co. is planning to buy a new machine to improve production efficiency. Three...
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Accounting
ABC Manufacturing Co. is planning to buy a new machine to improve production efficiency. Three machines are available for consideration. The details are as follows. Assume all sales are on cash. The corporate income-tax rate is 30%. Interest on capital may be assumed to be 11%.
Particulars
Machine X(Rs)
Machine Y(Rs)
Machine Z(Rs)
Initial investment
5,00,000
4,00,000
4,50,000
Estimated annual sales
6,50,000
5,50,000
5,80,000
Cost of production:
Direct material
70,000
65,000
60,000
Direct labour
55,000
45,000
50,000
Factory overhead
85,000
75,000
70,000
Administration cost
20,000
18,000
15,000
Selling & Distribution cost
12,000
10,000
8,000
The economic life of Machine X is 6 years, Machine Y is 4 years, and Machine Z is 5 years. The scrap values are Rs.30,000, Rs.25,000, and Rs.35,000 respectively. Determine the most profitable investment based on the payback period method.
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