Lopez Co. can invest in one of two alternative projects. 

Project Y requires a $240,000 initial investment for new machinery with a four-year life and no salvage value. 

Project Z requires a $240,000 initial investment for new machinery with a three-year life and no salvage value. The two projects yield the following annual results. Cash flows occur evenly within each year.

Required

1. Compute each project’s annual net cash flows.
2. Compute each project’s payback period. If the company bases investment decisions solely on payback period, which project will it choose?
3. Compute each project’s accounting rate of return.

 If the company bases investment decisions solely on accounting rate of return, which project will it choose?
4. Compute each project’s net present value using 9% as the discount rate. If the company bases investment decisions solely on net present value, which project will it choose?

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Annual Amounts Project Y Project Z Sales of new product.... $320,000 $350,000 Expenses Materials, labor, and overhead (except depreciation).. 146,000 150,000 Depreciation-Machinery..... Selling, general, and administrative expenses.. 60,000 70,000 50,000 40,000 Income.. $ 64,000 $ 90,000