Question
Posting again because my original one is wrong! pls help me out Most Company has an opportunity to invest in one of two new projects.
Posting again because my original one is wrong! pls help me out
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $300,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $300,000 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. (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 | $ | 385,000 | $ | 308,000 | ||||
Expenses | ||||||||
Direct materials | 53,900 | 38,500 | ||||||
Direct labor | 77,000 | 46,200 | ||||||
Overhead including depreciation | 138,600 | 138,600 | ||||||
Selling and administrative expenses | 28,000 | 27,000 | ||||||
Total expenses | 297,500 | 250,300 | ||||||
Pretax income | 87,500 | 57,700 | ||||||
Income taxes (38%) | 33,250 | 21,926 | ||||||
Net income | $ | 54,250 | $ | 35,774 | ||||
1. Compute each projects annual expected net cash flows.
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2. Determine each projects payback period.
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3. Compute each projects accounting rate of return.
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4. Determine each projects net present value using 8% as the discount rate. Assume that cash flows occur at each year-end. (Round your intermediate calculations.)
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