16.

Problem 11-2A Analysis and computation of payback period, accounting rate of return, and net present value LO P1, P2, P3

[The following information applies to the questions displayed below.] Most Company has an opportunity to invest in one of two new projects. Project Y requires a $330,000 investment for new machinery with a five-year life and no salvage value. Project Z requires a $330,000 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. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

	Project Y				Project Z
Sales		$	360,000			$	288,000
Expenses
Direct materials			50,400				36,000
Direct labor			72,000				43,200
Overhead including depreciation			129,600				129,600
Selling and administrative expenses			26,000				26,000
Total expenses			278,000				234,800
Pretax income			82,000				53,200
Income taxes (28%)			22,960				14,896
Net income		$	59,040			$	38,304
Required: 1. Compute each projects annual expected net cash flows. 2. Determine each projects payback period. 3. Compute each projects accounting rate of return. 4.4. Determine each projects 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. Project Y Project Z Problem 11-2A Part 2 2. Determine each project's payback period. Payback Period Choose Numerator: 7 Choose Denominator: = Payback Period Payback period Project Y Project Problem 11-2A Part 3 3. Compute each project's accounting rate of return. Accounting Rate of Return 1 Choose Denominator: Choose Numerator: = - = Accounting Rate of A Return Accounting rate of retum Project Y Project Z 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.) Project Y Chart values are based on: Select Chart Amount x PV Factor - Present Value Net present value Project Z Chart values are based on: Select Chart Amount x PV Factor = Present Value Net present value