Question
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $305,000 investment for new machinery with a four-year
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $305,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $305,000 investment for new machinery with a three-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. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
FV = http://lectures.mhhe.com/connect/0077429923/Images/tableb.2.JPG
PV = http://lectures.mhhe.com/connect/0077429923/Images/tableb.1.JPG
FVA = http://lectures.mhhe.com/connect/0077429923/Images/tableb.4.JPG
PVA = http://lectures.mhhe.com/connect/0077429923/Images/tableb.3.JPG
| Project Y | Project Z | |||||||||
| Sales | $ | 390,000 | $ | 305,000 | ||||||
| Expenses | ||||||||||
| Direct materials | 54,600 | 38,125 | ||||||||
| Direct labor | 78,000 | 45,750 | ||||||||
| Overhead including depreciation | 140,400 | 137,250 | ||||||||
| Selling and administrative expenses | 28,000 | 27,000 | ||||||||
| Total expenses | 301,000 | 248,125 | ||||||||
| Pretax income | 89,000 | 56,875 | ||||||||
| Income taxes (30%) | 26,700 | 17,063 | ||||||||
| Net income | $ | 62,300 | $ | 39,812 | ||||||
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