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UVW Tech wants to invest in new machinery to improve its production line. Three machines...

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Accounting

UVW Tech wants to invest in new machinery to improve its production line. Three machines are being considered. The relevant details are as follows. Assume all sales are on cash. The corporate income-tax rate is 28%. Interest on capital may be assumed to be 7%.

Particulars

Machine M(Rs)

Machine N(Rs)

Machine O(Rs)

Initial investment

2,80,000

3,00,000

3,50,000

Estimated annual sales

4,50,000

4,80,000

5,00,000

Cost of production:




Direct material

55,000

60,000

65,000

Direct labour

45,000

50,000

55,000

Factory overhead

65,000

70,000

75,000

Administration cost

18,000

20,000

22,000

Selling & Distribution cost

10,000

12,000

14,000

The economic life of Machine M is 3 years, Machine N is 4 years, and Machine O is 5 years. The scrap values are Rs.15,000, Rs.20,000, and Rs.25,000 respectively. Calculate the most profitable investment based on the payback period method

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