Most Company has an opportunity to invest in one of two new projects. Project Y requires a $310,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $310,000 investment for new machinery with a five-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 YProject Z
Sales $365,000 $292,000
Expenses
Direct materials 51,100 36,500
Direct labor 73,000 43,800
Overhead including depreciation 131,400 131,400
Selling and administrative expenses 26,000 26,000
Total expenses 281,500 237,700
Pretax income 83,500 54,300
Income taxes (34%) 28,390 18,462
Net income $55,110 $35,838
Required:
1. Compute each project's annual expected net cash flows.
2. Determine each project's payback period.
3. Compute each project's accounting rate of return.
4. Determine each project's net present value using 7% as the discount rate. Assume that cash flows occur at each year-end. (Round your intermediate calculations.)
TABLE 32' Future Value of '1 0 1.0000 1.0030 1.01100 1.0000 1.0030 1.0000 1.01100 1.0030 1.0300 1.0000 1.5000 1.001141I 1 1.0102]I 1.0200 1.0300 1.0400 1.0500 1.0500 1.0200 1.0300 1.0900 1.1000 1.1200 1.151142I 2 1.0201 1.0404 1.0509 1.0315 1.1025 1.1235 1.1449 1.1554 1.1331 1.2103I 1.2544 1.3225 3 1.0303 1.0512 1.0922 1.1249 1.1525 1.1910 1.2250 1.2592 1.2950 1.3310 1.4049 1.5209 4 1.0405 1.0324 1.1255 1.1599 1.2155 1.2525 1.3103 1.3505 1.4115 1.4541 1.5235 1.2493I 5 1.0510 1.1041 1.1593 1.2152 1.2253 1.3332 1.4025 1.4593 1.5335 1.5105 1.2523 2.0114 5 1.0515 1.1252 1.1941 1.2553 1.3401 1.4135 1.500? 1.5359 1.5221 1.2215 1.9233 2.3131 2 1.0221 1.1432 1.2299 1.3159 1.4021 1.5035 1.5053 1.2133 1.3230 1.9432 2.2102 2.55131I 3 1.0329 1.1212 1.2553 1.3535 1.4225 1.5933 1.2132 1.3509 1.9925 2.1435 2.4250 3.059e- 9 1.0932 1.1951 1.3043 1.4233 1.5513 1.5395 1.3335 1.9990 2.1219 2.3529 2.2231 3.5129 10 1.1045 1.2190 1.3439 1.4302 1.5239 1.2903 1.9522 2.1539 2.3524 2.5932 3.1053 4.04% 11 1.1152 1.2434 1.3342 1.5395 1.2103 1.3933 2.1049 2.3315 2.5304 2.3531 3.4235 4.5524 12 1.1253 1.2532 1.4253 1.5010 1.2959 2.0122 2.2522 2.5132 2.3122 3.1334 3.3950 5.3503 13 1.1331 1.2935 1.4535 1.5551 1.3355 2.1329 2.4093 2.2195 3.0553 3.4523 4.3535 5.1523 14 1.1495 1.3195 1.5125 1.2312 1.9299 2.2509 2.5235 2.9322 3.3412 3.2925 4.3321 2.0252 15 1.1510 1.3459 1.5530 1.3009 2.0239 2.3955 2.2590 3.1222 3.5425 4.1222 5.4235 3.1321 15 1.1225 1.3223 1.5042 1.3230 2.1329 2.5404 2.9522 3.4259 3.9203 4.5950 5.1304 9.3525 12 1.1343 1.4032 1.5523 1.9429 2.2920 2.5923 3.1533 330m 4.3225 5.0545 5.3550 10.2513 13 1.1951 1.4232 1.2024 2.0253 2.4055 2.3543 3.3299 3.9950 4.2121 5.5599 2.5900 12.3255 19 1.2031 1.4553 1.2535 2.1053 2.5220 3.0255 3.5155 4.3152 5.1412 5.1159 3.5123 14.2313 20 1.2202 1.4359 1.3051 2.1911 2.5533 3.2021 3.3592 4.5510 5.5044 5.2225 9.5453 15.3555 25 1.2324 1.5405 2.0933 2.5553 3.3354 4.2919 5.4224 5.3435 3.5231 10.3342 12.5001 32.915!) 30 1.3423 1.3114 2.4223 3.2434 4.3219 5.2435 2.5123 10.0522 13.2522 12.4494 29.9599 55.2113 35 1.4155 1.9999 2.3139 3.9451 5.5150 2.5351 10.5255 14.2353 20.4140 23.1024 52.2995 133.1255 40 1.4339 2.2030 3.2520 4.3010 2.0400 10.2352 149245 21.2245 31.4094 45.2593 93.0510 252.3535 1 Used In mopute the fuune value of a known present srnounL For examp1e: thl is I11: accumulated value of $3.010 invested Elia} at 3% compounded quarterly for 5 years? Using the fscmrs of n = 20 and i = 2% [20 qusnerl}! periods and a quarterly interest tale of 2%}, the factor is 1.4359. The accumulated value is $4,452.20 (53,041] x 1.4359). \fTABLE 3.4! Future Value ofan 73.nnuit5.r ofl 1 1.0000 1.0030 1.0600 1.0064]I 1.01100 1.0064]I 1.00110 1.0000 1.00(.'.'.'lI 1.0003I 1.01100 1.0003I 2 2.0103I 20200 2.0300 2.0461]I 2.0500 2.06110I 2.0700 2.030} 2.0900 2.1003I 2.1200 2.1503I 3 3.0301 3.0604 3.09.79 3.1216 3.1525 3.1336 3.2149 3.2454 3.2731 3.3103I 3.3744 3.4725 4 4.0604 4.1216 4.1335 4.2465 4.3101 4.3746 4.4399 4.5061 4.5731 4.6410 4.7793 4.9934 5 5.1010 5.2040 5.3091 5.4163 5.5255 5.6371 5.7507 5.3656 5.9347 5.1051 6.3523 5.7424 6 6.1520 5.3031 6.4534 5.6330I 6.3019 5.9753 7.1533 7.3359 7.5233 7.7156 3.1152 3.7537 7 7.2135 7.4343 7.6625 7.3933 3.1420 3.3933 3.6540 3.9223 9.2004 9.4372 10.0390 11.0663 3 3.235 3.5330 3.3923 9.2142 9.5491 9.3975 10.2593 10.6366 11.0235 11.4359 12.2997 13.7263 9 9.3635 9.7546 10.1591 10.5323 11.0265 11.4913 11.9730 12.4376 13.0210 13.5795 14.7757 15.7353 10 10.4622 10.9497 11.4639 12.0061 12.5779 13.1303 13.3164 14.4356 15.1929 15.9374 17.5437 20.3037 11 11.5663 121637 12.3073 13.4354 14.2063 14.9716 15.7336 15.6455 17.5603 13.5312 20.6545 24.3493 12 12.5325 13.4121 14.1920 15.0253 15.9171 15.3699 17.3335 13.9771 20.1407 21.3343 24.1331 29.0017 13 13.3093 14.6333 15.6173 16.6263 17.7130 13.3321 20.1406 21.4953 22.9534 24.5227 23.0291 34.3519 14 14.9474 15.9739 17.0363 13.2919 19.5935 21.0151 22.5505 24.2149 25.0192 27.9750 32.3925 40.5047 15 16.0969 17.2934 13.5939 20.0236 21.5735 23.2760 25.1290 27.1521 29.3609 31.7725 37.2797 47.5304 16 17.2579 13.6393 20.1569 21.3245 23.5575 25.6725 27.3331 30.3243 33.0034 35.9497 42.7533 55.7175 17 13.4304 20.0121 21.7515 23.6975 25.3404 23.2129 30.3402 33.7502 35.9737 40.5447 43.3337 65.0751 13 19.5147 21.4123 23.4144 25.6454 23.1324 30.9057 33.9990 37.4502 41.3013 45.5992 55.7497 75.3354 19 20.3109 223406 25.1169 27.6712 30.5390 33.7641) 37.3790 41.4463 45.0135 51.1591 63.4397 33.2113 20 22.0193I 24.2974 26.3704 29.7731 33.6660 35.7356 40.9955 45.7620 51.1601 57.2750 72.0524 102.4436 25 23.2432 320303 36.4593 41.6459 47.7271 54.3545 63.2453} 73.1059 34.7609 93.3471 133.3339 212.7930 30 34.7349 40.5631 47.5754 56.0349 56.4333 79.0532 94.4603 113.2332 136.3075 164.4940 241.3327 434.7451 35 41.6603 49.9945 60.4621 73.6522 111.3203 111.4343 133.2359 172.3163 215.7103 271.0244 431.56% 331.1702 40 43.3364 60.4020 75.4013 95.0255 120.7993 154.7520 199.5351 259.0565 337.3324 442.5926 767.0914 1.7790933 I0541:4115 calculus the future value of a series oquual paymenls made :1 the end ofeach period. Forenmple: What is I]: fume value UfS4.EHJD pet )earfcn' 3am assuming an annual inmates! rate of 33.17am : 6.1: 391:). III: FV factor BIB-359. $4.000 per year fort": years minus lo $29,343.60 ($4.11!) r: 7.3359). [1_ 1 1\": names: Present Value of an Annuity of 1 1 0.9901 0.9804 0.9109 0.9615 0.9524 0.9434 0.9346 0.9259 0.9114 0.9091 0.8929 0.8696 2 1.9104 1.9416 1.9135 1.8861 1.8594 1.8334 1.8080 1.1833 1.1591 1.1355 1.6901 1.6251 3 2.9410 2.8839 2.8286 2.1151 2.1232 2.6130 26243 2.5111 2.5313 2.4869 2.4018 2.2832 4 3.9020 3.8011 3.1111 3.6299 3.5460 3.4651 3.3812 3.3121 3.2391 3.1699 3.0313 2.8550 5 4.8534 4.1135 4.5191 4.4518 4.3295 4.2124 4.1002 3.9921 3.8891 3.1908 3.6048 3.3522 6 5.1955 5.6014 5.4112 5.2421 5.0151 4.9113 4.1665 4.6229 4.4859 4.3553 4.1114 3.1845 1 6.1282 6.4120 6.2303 6.0021 5.1864 5.5824 5.3893 5.2064 5.0330 4.8684 4.5638 4.1604 8 1.6511 1.3255 1.0191 6.1321 6.4632 6.2098 5.9113 5.1466 5.5348 5.3349 4.9616 4.4813 9 8.5660 8.1622 1.1861 1.4353 1.1018 6.8011 6.5152 6.2469 5.9952 5.1590 5.3282 4.1116 10 9.4113 8.9826 8.5302 8.1109 1.1211 1.3601 1.0236 6.1101 6.4111 6.1446 5.6502 5.0188 11 10.3616 9.1868 9.2526 8.1605 8.3064 1.8869 1.4981 1.1390 6.8052 6.4951 5.9311 5.2331 12 11.2551 10.5153 9.9540 9.3851 8.8633 8.3838 1.9421 1.5361 1.1601 6.8131 6.1944 5.4206 13 12.1331 11.3484 10.6350 9.9856 9.3936 8.8521 8.3511 1.9.138 1.4869 1.1034 6.4235 5.5831 14 13.0031 12.1062 11.2961 10.5631 9.8986 9.2950 8.1455 8.2442 1.1862 1.3661 6.6282 5.1245 15 13.8651 12.8493 11.9319 11.1184 10.3191 9.1122 9.1019 8.5595 8.0601 1.6061 6.8109 5.8414 16 14.1119 13.5111 12.5611 11.6523 10.8318 10.1059 9.4466 8.8514 8.3126 1.8231 6.9140 5.9542 11 15.5623 14.2919 13.1661 12.1651 11.2141 10.4113 9.1632 9.1216 8.5436 8.0216 1.1196 6.0412 18 16.3983 14.9920 13.1535 12.6593 11.6896 10.8216 10.0591 9.3119 8.1556 8.2014 1.2491 6.1280 19 11.2260 15.6185 14.3238 13.1339 12.0853 11.1581 10. 33% 9.6036 8.9501 8.3649 1.3658 6.1982 20 18.0456 16.3514 14.8115 13.51813 12.4622 11.4699 10.5940 9.8181 9.1285 8.5136 1.4694 6.2593 25 22.0232 19.5235 11.4131 15.6221 14.0939 12.1834 11.6536 10.6148 9.8226 9.0110 1.8431 6.4641 30 25.8011 22.3965 19.6004 11.2920 15.3125 13.1648 124091 11.2518 10.2131 9.4269 8.0552 6.5660 35 29.4086 24.9986 21.4812 18.6646 16.3142 14.4982 129411 11.6546 10.5668 9.6442 8.1155 6.6166 40 32.8341 21.3555 23.1148 19.1928 11.1591 15.0463 13.3311 11.9246 10.1514 9.1191 8.2438 6.6418 ' Used to calcuiale The present value ofa series fe-qua] payments made an the end efeach period. Forexample:wha1 is \"I: presenlvaJue of $2,000 per year for lyears [sunning an annual interest rate 519%. For (:1: 10.1: 9%), The PV factor is 6.4lTr'_ $2.001] per year for lyears is the equivalem 01'512335 [041135202111] :4 5.4111)
