Assessment 9: Making the Right Decision Worksheet
Problems 14
																		Input values
Complete problems 14 based on the following scenario.
Megacorp needs to decide which of two new projects to invest in.																		Company name				Megacorp
	Project A is an investment in new machinery that will cost $750,000																	Tax rate				30%
	and has a four-year life with no salvage value.																	Discount rate				6%
	Project B is an investment in new machinery that will cost $750,000																				Project A	Project B
	and has a three-year life with no salvage value.																	Investment			$ 750,000	$ 750,000
Using straight-line depreciation, Megacorp predicts that the two projects																		Life of machinery (in years)			4	3
will yield the following annual results, with cash flows occurring evenly																					four	three
throughout the year.																		Salvage value			$0	$0
Predicted Annual Results																		Predicted Annual Results
						Project A ($)					Project B ($)											Project A ($)	Project B ($)
Sales									700,000					560,000				Sales				700,000	560,000
Expenses:		Direct materials					98,000					70,000						Expenses:	Direct materials			98,000	70,000
		Direct labor					140,000					84,000							Direct labor			140,000	84,000
		Overhead including depreciation					252,000					252,000							Overhead including depreciation			252,000	252,000
		Selling and administrative expenses					50,000					50,000							Selling and administrative expenses			50,000	50,000
		Total expenses							540,000					456,000					Total expenses			540,000	456,000
Pretax income									160,000					104,000				Pretax income				160,000	104,000
Income taxes (30%)									48,000					31,200				Income taxes (30%)				48,000	31,200
Net income									112,000					72,800				Net income				112,000	72,800
Complete the problems below. Add answers in this template and show your work.																		Present value of $1 at 6% annuity for 4 years				3.4651
																		Present value of $1 at 6% annuity for 3 years				2.6730
Problem 1	Compute the annual expected net cash flows for each project.
Problem 2	Determine the payback period for each project.
Problem 3	Compute the accounting rate of return for each project.
Problem 4	Determine the net present value using 6% as the discount rate