Problem 24-2A Analysis and computation of payback period, accounting rate of return, and net present value LO P1, P2, P3

[The following information applies to the questions displayed below.]

Most Company has an opportunity to invest in one of two new projects. Project Y requires a $340,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $340,000 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		$	370,000				$	296,000
Expenses
Direct materials			51,800					37,000
Direct labor			74,000					44,400
Overhead including depreciation			133,200					133,200
Selling and administrative expenses			26,000					26,000
Total expenses			285,000					240,600
Pretax income			85,000					55,400
Income taxes (40%)			34,000					22,160
Net income		$	51,000				$	33,240

Problem 24-2A Analysis and computation of payback period, accounting rate of return, and net present value LO P1, P2, P3 (The following information applies to the questions displayed below.) Most Company has an opportunity to invest in one of two new projects. Project Y requires a $340,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $340,000 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 $ 296,000 $ 370,000 Sales Expenses Direct materials Direct labor Overhead including depreciation Selling and administrative expenses 51,800 74,000 133,200 26,000 37,000 44,400 133,200 26,000 Total expenses 285,000 240,600 Pretax income Income taxes (40%) 85,000 34,000 55,400 22,160 Net income $ 51,000 $ 33,240 Problem 24-2A Part 1 Required: 1. Compute each project's annual expected net cash flows. Project Y Project z Problem 24-2A Part 2 2. Determine each project's payback period. Payback Period Choose Numerator: 1 Choose Denominator: / Payback Period Payback period II 0 Project Y Project Z = 0 Problem 24-2A Part 3 3. Compute each project's accounting rate of return. Accounting Rate of Return 1 Choose Denominator: Choose Numerator: = Accounting Rate of Return Accounting rate of return 0 1 Il Project Y Project Z 0