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Tech Innovators is deciding between three new laser machines. The details are as follows. The corporate...

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Accounting

  • Tech Innovators is deciding between three new laser machines. The details are as follows. The corporate tax rate is 20%, and the cost of capital is 11%.

Particulars

Machine P (?)

Machine Q (?)

Machine R (?)

Initial investment

5,00,000

4,00,000

6,00,000

Estimated annual sales

8,00,000

7,00,000

9,00,000

Cost of production:




Direct material

75,000

65,000

70,000

Direct labour

85,000

75,000

80,000

Factory overhead

95,000

85,000

90,000

Administration cost

45,000

35,000

40,000

Selling & Distribution cost

30,000

25,000

35,000

  • The economic life of machine P is 2 years, while it is 3 years for the other two. The scrap values are ?60,000, ?50,000, and ?40,000 respectively. Determine the most profitable investment based on the payback period method.

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