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GlobalTech Inc. is evaluating three new manufacturing machines. The details are as follows. The corporate tax...

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Question

Accounting

  • GlobalTech Inc. is evaluating three new manufacturing machines. The details are as follows. The corporate tax rate is 30%, and the cost of capital is 8%.

Particulars

Machine X (?)

Machine Y (?)

Machine Z (?)

Initial investment

6,00,000

4,50,000

5,00,000

Estimated annual sales

7,00,000

6,50,000

5,90,000

Cost of production:




Direct material

70,000

60,000

55,000

Direct labour

80,000

70,000

65,000

Factory overhead

90,000

80,000

75,000

Administration cost

40,000

35,000

30,000

Selling & Distribution cost

25,000

20,000

15,000

  • The economic life of machine X is 3 years, while it is 2 years for the other two. The scrap values are ?70,000, ?40,000, and ?30,000 respectively. You are required to find out the most profitable investment based on the payback period method.

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