Omega Tech Solutions is looking at three different machines to enhance production efficiency. Details of...
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Accounting
Omega Tech Solutions is looking at three different machines to enhance production efficiency. Details of the machines are given below. Assume all sales are on cash basis. Corporate income-tax rate is 29%. Interest on capital may be assumed to be 10%.
Particulars
Machine 101 (?)
Machine 102 (?)
Machine 103 (?)
Initial investment
38,00,000
42,00,000
40,00,000
Estimated annual sales
7,00,000
6,50,000
7,50,000
Cost of production:
Direct material
60,000
55,000
70,000
Direct labour
50,000
45,000
60,000
Factory overhead
80,000
75,000
90,000
Administration cost
30,000
25,000
35,000
Selling & Distribution cost
20,000
18,000
25,000
The economic life of Machine 101 is 3 years while it is 4 years for the other two. The scrap values are ?53,000, ?43,000, and ?48,000 respectively. You are required to find the most profitable investment based on the payback period method.
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