Calculate most profitable investment, Financial Management

TC  Shipping Ltd has decided to purchase a machine to augment the company's installed capacity to meet the growing demand for its products. There are three machines under consideration of the management. The relevant details including estimated yearly expenditure and sales are given below: All Sales are on cash. Corporate income tax rate is 40%. Interest on Capital may be assumed to be 10%.

Particulars

Machine 1

Machine 2

Machine 3

Initial Investment Required

3,00000

3,00000

3,00000

Estimated Annual Sales

5,00,000

4,00,000

4,50,000

Cost of Production(Estimated):

 

 

 

Direct Materials

40,000

50,000

48,000

Direct Labor

50,000

30,000

36,000

Factory overheads

60,000

50,000

58,000

Administration costs

20,000

50,000

'15,000

Selling and Distribution Costs

10,000

10,000

10,000

The economics life of Machine 1 is 2 years, while it is 3 years for the other two. The scrap values are Rs.40, 000, Rs. 25,000, and Rs.30, 000 respectively. Suggest the most profitable investment based on various project appraisal techniques.

 

 

Posted Date: 3/9/2013 2:30:05 AM | Location : United States







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