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Most Company has an opportunity to invest in one of two new projects. Project Y requires a $320,000 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 $320,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $320,000 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. (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 $ 375,000 $ 300,000
Expenses
Direct materials 52,500 37,500
Direct labor 75,000 45,000
Overhead including depreciation 135,000 135,000
Selling and administrative expenses 27,000 27,000
Total expenses 289,500 244,500
Pretax income 85,500 55,500
Income taxes (30%) 25,650 16,650
Net income $ 59,850 $ 38,850

1.

Compute each projects annual expected net cash flows.

Determine each projects payback period.

Compute each projects accounting rate of return.

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