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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