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FutureTech Ltd. needs to choose between three new processing machines. The relevant details are as follows....

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Question

Accounting

  • FutureTech Ltd. needs to choose between three new processing machines. The relevant details are as follows. Assume a tax rate of 25% and an interest on capital of 10%.

Particulars

Machine Alpha (?)

Machine Beta (?)

Machine Gamma (?)

Initial investment

3,20,000

3,80,000

4,00,000

Estimated annual sales

5,20,000

4,70,000

4,90,000

Cost of production:




Direct material

45,000

35,000

40,000

Direct labour

55,000

45,000

50,000

Factory overhead

65,000

55,000

60,000

Administration cost

25,000

20,000

30,000

Selling & Distribution cost

15,000

10,000

20,000

  • The economic life of machine Alpha is 4 years, while it is 3 years for the other two. The scrap values are ?35,000, ?25,000, and ?30,000 respectively. Calculate the payback period for each machine to determine the best investment.

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