Garcia Company can invest in one of two alternative projects. Project Y requires a $500,000 initial investment for new machinery with a four-year life and no salvage value. Project Z requires a $480,000 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 Project Y Project Z $ 470,000 $ 570,000 204,000 125,000 64,000 214,000 160,000 64,000 Income $ 77,000 $ 132,000 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 7% 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 Income Cash Flow Income $ 470,000 $ 470,000 Project Z Cash Flow Materials, labor, and overhead (except depreciation) 204,000 214,000 Depreciation-Machinery 125,000 160,000 Selling, general, and administrative expenses 64,000 64,000 Income $ 77,000 $ (438,000) Net cash flow $ 470,000 $ 0 < Required 1 Required 2 > 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? Payback Period Numerator: Denominator: Initial investment Annual net cash flow Payback period Project Y Project Z $ $ 500,000 1 480,000 $ $ 202,000 = 2.48 years 292,000 = 1.64 years If the company bases investment decisions solely on payback period, which project will it choose? Project Z < Required 1 Required 3 > 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 Project Z Numerator: Annual income $ $ Accounting Rate of Return Denominator: Average investment 77,000 132,000 $ $ Accounting rate of return 250,000 = 30.8 % 240,000 If the company bases investment decisions solely on accounting rate of return, which project will it choose? 55.0 % Project Z < Required 2 Required 4 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 7% 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 Present Value Net Cash Flows of Annuity at 7% Present Value of Net Cash Flows Years 1-4 $ (500,000) 3.3872= $ (1,693,600) Present value of cash inflows 202,000 Net present value $ 184,214 Present Value Present Value of Project Z Net Cash Flows of Annuity at 7% Net Cash Flows Years 1-3 $ 0 Net present value $ 286,296 If the company bases investment decisions solely on net present value, which project will it choose? Project Z < Required 3 Required 4 >