RS Limited is manufacturing selling soft drinks in India. The production process involves one important process which increases the shelf life of…

RS Limited is manufacturing selling soft drinks in India. The production process involves one important process which increases the shelf life of the soft drinks. Presently, the machine used for this purpose is an old one, in which wastage due to breakage of glass bottles is considerably high and due to its limited capacity, the company is not in a position to increase its production. The production manager has approached the CEO of RS Limited for purchasing an automated machine, which will drastically reduce the wastage due to breakage during the process of increasing shelf life of soft drinks. The automated machine will support increase in production. The production manager is confident that acquisition of the automated machine will be beneficial for the company. Other information is as under : With the introduction of automated machine, additional sales and related costs over the next five years would be as follows: Year Additional Sales Unit Selling price per unit (₹) Variable Manufacturing, Selling and Distribution cost per unit (₹) Additional fixed Selling & Distribution Cost (₹) 1 20,000 30 20 25,000 2 25,000 30 20 30,000 3 30,000 35 20 30,000 4 32,000 35 22 35,000 5 28,000 35 22 35,000 Cost of acquisition of automated machine is 5,00,000. Residual value of the automated machine at the end of its life of 5 years will be - 50,000. Depreciation on automated machine will be under Straight line method. Depreciation is not included in the cost stated above.The Production Manager has estimated the cost savings (before tax) due to reduction in breakages as under: Year 1 Year 2 Year 3 Year 4 Year 5 Savings Cost due to reduction in breakages 15,000 15,000 20,000 20,000 20,000 The machine which is being used at present has zero written down value and if sold, would fetch an amount of 10,000 only.The cost of capital of the company is 10%. The tax rate applicable for the company is 30%. Ignore capital gain taxes. P.V Factors of 1at year end at 10%: Year 1 Year 2 Year 3 Year 4 Year 5 P.V Factor of 1 0.909 0.826 0.751 0.683 0.621 You are required to answer the following Questions 1 to 5 :