FastFoods Inc. is considering three new food processing machines. The details are provided below. The corporate...
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Accounting
FastFoods Inc. is considering three new food processing machines. The details are provided below. The corporate tax rate is 26%, and the interest on capital is 10%.
Particulars
Machine F1 (?)
Machine F2 (?)
Machine F3 (?)
Initial investment
4,50,000
3,50,000
5,50,000
Estimated annual sales
6,50,000
6,00,000
7,00,000
Cost of production:
Direct material
55,000
50,000
65,000
Direct labour
65,000
60,000
75,000
Factory overhead
75,000
70,000
85,000
Administration cost
30,000
25,000
35,000
Selling & Distribution cost
25,000
20,000
30,000
The economic life of machine F1 is 2 years, while it is 3 years for the other two. The scrap values are ?50,000, ?40,000, and ?30,000 respectively. Use the payback period method to find the best investment.
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