Question
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 four-year
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 four-year life and no salvage value. Project Z requires a $310,000 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.) |
| 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 (40%) |
|
| 33,400 |
|
|
|
| 21,720 |
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 50,100 |
|
|
| $ | 32,580 |
|
|
|
|
|
|
|
|
| ||||
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