Question

XYZ It is considering the possibility of manufacturing a particular component which at present is being bought from outside. The manufacture of the component would call for an investment of R 7,50,000 in a new machine besides an additional investment of R50,000 in working Capital. The life of the machine would be 10 Years, with a salvage value of 750,000. The estimated savings (before tax) would be ™ 1,80,000 per annum. The Income tax rate is 50%. The company's required rate of return is 10%. Depreciation is provided on straight line basis.

Answer 1

The question is about deciding whether a company should make a component in-house or buy it, considering various financial factors such as investment costs, savings, taxes, and the required rate of return.

Step-by-step explanation:

The question involves making a financial decision about whether a company should proceed with manufacturing a component in-house or continue purchasing it from an external supplier. It is a business and economics-related problem that considers the investment in new machinery, operating costs, depreciation, tax implications, and the required rate of return. To analyze the feasibility, one would typically use methods such as net present value (NPV), internal rate of return (IRR), or payback period calculations, which are standard in capital budgeting practices.