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 $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
|Project Y||Project Z|
|Overhead including depreciation||135,000||144,000|
|Selling and administrative expenses||27,000||29,000|
|Income taxes (30%)||25,650||17,700|
Compute each project’s annual expected net cash flows.
Determine each project’s payback period.
Compute each project’s accounting rate of return.
- 5 years ago
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