Question
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $350,000 investment for new machinery with a six-year
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $350,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $350,000 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 Y | Project 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 (38%) | 31,730 | 20,634 | ||||||
Net income | $ | 51,770 | $ | 33,666 | ||||
What is the annual average investment for Project Y?
And for Project Z?
I need annual average investment to get ARR
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