Question: 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
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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