Zenith Tech Ltd is evaluating three machines to boost its production. The details for the...
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Accounting
Zenith Tech Ltd is evaluating three machines to boost its production. The details for the machines are as follows. Assume all sales are cash-based. Corporate income-tax rate is 32%. Interest on capital may be assumed to be 7%.
Particulars
Machine A1 (?)
Machine B1 (?)
Machine C1 (?)
Initial investment
20,00,000
22,00,000
24,00,000
Estimated annual sales
5,50,000
5,00,000
6,00,000
Cost of production:
Direct material
45,000
40,000
50,000
Direct labour
35,000
30,000
40,000
Factory overhead
55,000
50,000
65,000
Administration cost
20,000
18,000
25,000
Selling & Distribution cost
12,000
10,000
15,000
The economic life of Machine A1 is 2 years while it is 3 years for the other two. The scrap values are ?45,000, ?35,000, and ?40,000 respectively. You are required to find the most profitable investment based on the payback period method.
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