Problem 24 3A (Algo) Applying payback period, accounting rate of return, and net present value LO P1, P2, P3 Garca Company can invest in one of two alternative projects Project Y requires a $540,000 initial investment for new machinery with a four year life and no salvage value Project Z requires a $504,000 initial investment for new machinery with a three year life and no salvage value The two projects yield the following annual results Cash flows occur evenly within each year (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided ) Annual Amounts Project Y Project Z Sales of new product $ 490,000 $ 590,000 Expenses Materials, labor, and overhead (except depreciation) 208,000 218,000 DepreciationMachinery 135,000 168,000 Selling, general, and administrative expenses 68,000 68,000 Income $ 79,000 $ 136,000 Required 1 Compute each projects annual net cash flows 2 Compute each projects payback period If the company bases investment decisions solely on payback period, which project will it choose 3 Compute each projects accounting rate of return If the company bases investment decisions solely on accounting rate of return, which project will it choose 4 Compute each projects net present value using 9 as the discount rate If the company bases investment decisions solely on net present value, which project will it choose

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Problem 24-3A (Algo) Applying payback period, accounting rate of return, and net present value LO P1, P2, P3 Garca Company can invest in one of

Problem 24-3A (Algo) Applying payback period, accounting rate of return, and net present value LO P1, P2, P3

Garca Company can invest in one of two alternative projects. Project Y requires a $540,000 initial investment for new machinery with a four-year life and no salvage value. Project Z requires a $504,000 initial investment for new machinery with a three-year life and no salvage value. The two projects yield the following annual results. Cash flows occur evenly within each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Annual Amounts	Project Y	Project Z
Sales of new product	$ 490,000	$ 590,000
Expenses
Materials, labor, and overhead (except depreciation)	208,000	218,000
DepreciationMachinery	135,000	168,000
Selling, general, and administrative expenses	68,000	68,000
Income	$ 79,000	$ 136,000

Required: 1. Compute each projects annual net cash flows. 2. Compute each projects payback period. If the company bases investment decisions solely on payback period, which project will it choose? 3. Compute each projects accounting rate of return. If the company bases investment decisions solely on accounting rate of return, which project will it choose? 4. Compute each projects net present value using 9% as the discount rate. If the company bases investment decisions solely on net present value, which project will it choose?