Global Manufacturing Corp is considering purchasing a machine to improve its operational efficiency. The details...
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Accounting
Global Manufacturing Corp is considering purchasing a machine to improve its operational efficiency. The details for three potential machines are listed below. Assume all sales are cash transactions. Corporate income-tax rate is 28%. Interest on capital may be assumed to be 9%.
Particulars
Machine 1 (?)
Machine 2 (?)
Machine 3 (?)
Initial investment
45,00,000
50,00,000
48,00,000
Estimated annual sales
8,00,000
7,50,000
8,50,000
Cost of production:
Direct material
70,000
65,000
80,000
Direct labour
60,000
55,000
70,000
Factory overhead
90,000
85,000
1,00,000
Administration cost
35,000
30,000
40,000
Selling & Distribution cost
25,000
22,000
30,000
The economic life of Machine 1 is 4 years while it is 5 years for the other two. The scrap values are ?60,000, ?50,000, and ?55,000 respectively. You are required to identify the most profitable investment based on the payback period method.
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