accounting unit 9

In this assignment, you will analyze and compute payback period, accounting rate of return, and net present value.

Use either a Word document or an Excel spreadsheet to complete the following in your Financial and Managerial Accounting textbook:

· Problem 24-2B, page 1091.

Problem 24-2B Analysis and computation of payback period, accounting rate of return, and net present value

Aikman Company has an opportunity to invest in one of two projects. Project A requires a $240,000 investment for new machinery with a four-year life and no salvage value. Project B also requires a $240,000 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.

Required

1. Compute each project’s annual expected net cash flows. (Round net cash flows to the nearest dollar.)

2. Determine each project’s payback period. (Round the payback period to two decimals.) Check  For Project A: (2) 2.4 years

3. Compute each project’s accounting rate of return. (Round the percentage return to one decimal.) (3) 33.3%

4. Determine each project’s net present value using 8% as the discount rate. For part 4 only, assume that cash flows occur at each year-end. (Round net present values to the nearest dollar.) (4) $90,879

Analysis Component

5. Identify the project you would recommend to management and explain your choice.