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 EVA 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 Project Y Project Z $540,000 198,000 110,000 58,000 208,000 148,000 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? Required 1 Required 2 Required 3 Required 4 Compute each project's annual net cash flows. Project Y Project Z Annual Amounts Income Cash Flow Income Cash Flow Sales of new product Expenses $ 440,000 $ 440,000 $ 540,000 $ 540,000 Materials, labor, and overhead (except depreciation) 198,000 208,000 Depreciation-Machinery 110,000 148,000 Selling, general, and administrative expenses 58,000 58,000 Income $ 74,000 $ 126,000 Net cash flow $ 440,000 $ 540,000 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 Project Y Project Z $ $ 440,000 444,000 If the company bases investment decisions solely on payback period, which project will it choose? < Required 1 Required 3 > Payback period 0 0 Project Z 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? Accounting Rate of Return Numerator: Annual income Denominator: Average investment = Accounting rate of return Project Y Project Z If the company bases investment decisions solely on accounting rate of return, which project will it choose? 0 0 Project Z 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 Initial investment Net present value Present Value Present Value of Net Cash Flows x of Annuity at 6% Net Cash Flows = $ Project Z Net Cash Flows x Present Value of Annuity at 6% Present Value of Net Cash Flows Years 1-3 = $ 0 Initial investment Net present value If the company bases investment decisions solely on net present value, which project will it choose? Project Z