26-3A (Algo) Applying payback period, accounting rate of return, and net present value LO P1, P2, P3 Garcia Company can invest in one of two alternative projects. Project Y requires a $440,000 initial investment for new machinery with a four-year life and no salvage value. Project Z requires a $444,000 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. (PV of $1. FV of $1. PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Required: 1. Compute each project's annual net cash flows. $ 440,000 198,000 110,000 58,000 Project Y Project z $540,000 208,000 148,000 58,000 $ 74,000 $ 126,000 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 6% as the discount rate. If the company bases investment decisions solely on net present value, which project will it choose? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute each project's annual net cash flows. Annual Amounts Sales of new product Expenses Project Y Project Z Income Cash Flow Income $ 440,000 $ 440,000 Materials, labor, and overhead (except depreciation) 198,000 Depreciation-Machinery 110,000 Selling, general, and administrative expenses 58,000 Income $ 74,000 Net cash flow $ 440,000 Required Required 2 > 208,000 148,000 58,000 $ (414,000) Cash Flow $ Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute each project's payback period. If the company bases investment decisions solely on payback period, which project will it choose? Project Y Project Z Numerator: Payback Period Denominator: If the company bases investment decisions solely on payback period, which project will it choose? Payback period 0 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 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? Project Y Accounting Rate of Return Numerator: Denominator: Project Z If the company bases investment decisions solely on accounting rate of return, which project will it choose? Accounting rate of return 0 0 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute each project's net present value using 6% as the discount rate. If the company bases investment decisions solely on net present value, which project will it choose? (Do not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whole dollar.) Project Y Years 1-4 Net present value Present Value Net Cash Flows x of Annuity at 6% Present Value of Net Cash Flows Present Value Present Value of Project Z Net Cash Flows x of Annuity at 6% Net Cash Flows Years 1-3 $ Net present value If the company bases investment decisions solely on net present value, which project will it choose