an opportunity to invest in one of two new projects
SuperClassMost Company has an opportunity to invest in one of two new projects. Project Y requires a $340,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $340,000 investment for new machinery with a three-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 | |||||||||
Sales | $ | 370,000 | $ | 330,000 | ||||||
Expenses | ||||||||||
Direct materials | 51,800 | 41,250 | ||||||||
Direct labor | 74,000 | 49,500 | ||||||||
Overhead including depreciation | 133,200 | 148,500 | ||||||||
Selling and administrative expenses | 26,000 | 29,000 | ||||||||
| ||||||||||
Total expenses | 285,000 | 268,250 | ||||||||
| ||||||||||
Pretax income | 85,000 | 61,750 | ||||||||
Income taxes (26%) | 22,100 | 16,055 | ||||||||
| ||||||||||
Net income | $ | 62,900 | $ | 45,695 | ||||||
4. 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.) | ||||||||||
Required:
1. Compute each project’s annual expected net cash flows
2. Determine each project’s payback period.
3. Compute each project’s accounting rate of return.
4. 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.)
10 years ago
Purchase the answer to view it
an_opportunity_to_invest_in_one_of_two_new_projects.docx
