Academic MBA Question:
Q. A Company is considering replacing one of existing machine with either a state of the art “Automatic Machine” which will reduce the labour cost by 80% or with a standard machine. The automatic machine will cost Rs. 2, 50, 000 with an estimated life of 5 year, whereas the standard machine will cost Rs. 2, 00, 000 with an estimated life of 8 year. Both machine have no residual value. Assume tax rate to be 40%.
The annual sales and costs are estimated as below:
Calculate the payback period and advice the management