Most Company has an opportunity to invest in one of two new projects. Project Y requires a $305,000 investment for new machinery with a five-year life and no salvage value. Project Z requires a $305,000 investment for new machinery with a four-year life and no salvage value. The two projects yield the following predicted annual results. The company uses straight-line depreciation, and cash flows occur evenly throughout each year. (FV of $1PV of $1FVA of $1 and PVA of $1(Use appropriate factor(s) from the tables provided.)

  
 

 Project YProject Z
  Sales $375,000   $320,000  
  Expenses          
      Direct materials  52,500    40,000  
      Direct labor  75,000    48,000  
      Overhead including depreciation  135,000    144,000  
      Selling and administrative expenses  27,000    29,000  
   

   

  
  Total expenses  289,500    261,000  
   

   

  
  Pretax income  85,500    59,000  
  Income taxes (30%)  25,650    17,700  
   

   

  
  Net income $59,850   $41,300

 

 

 

  Compute each project’s annual expected net cash flows.

Determine each project’s payback period.

Compute each project’s accounting rate of return.

 

Determine each project’s net present value using 8% as the discount rate. Assume that cash flows occur at each year-end. (Round your intermediate calculations.)

 



   





 

 

 

 

 

 

 

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