Problem 24-3A Part 4

4.	Compute the net present value of the investment if MACRS depreciation is used. Use 10% as the discount rate.

Problem 24-3A Part 3

3.	Compute the net present value of the investment if straight-line depreciation is used. Use 10% as the discount rate.

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 $345,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $345,000 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, andFVA of $1)(Use appropriate factor(s) from the tables provided.)

	Project Y	Project Z
Sales		$	380,000				$	305,000
Expenses
Direct materials			53,200					38,125
Direct labor			76,000					45,750
Overhead including depreciation			136,800					137,250
Selling and administrative expenses			27,000					27,000
Total expenses			293,000					248,125
Pretax income			87,000					56,875
Income taxes (36%)			31,320					20,475
Net income		$	55,680				$	36,400

rev: 05_12_2014_QC_49497

Problem 24-2A Part 1

Required:
1.	Compute each projects annual expected net cash flows.
	Project Y Project Z ___________________________________ ____________________________________ ____________________________________ _____________________________________

Problem 24-2A Part 2

2.	Determine each projects payback period. Payback period Choose Numerator: / Choose Denominator: = Payback period ______________________/ _______________________= Payback period Project Y ___________ ____________________ = 0 Project Z ______________ ___________________ = 0

Problem 24-2A Part 3

3.

Compute each projects accounting rate of return. Accounting rate of return Choose Numerator: / Choose Denominator: = Accounting rate of return _______________________ / ______________________ = Accounting rate of return Project Y ______________ _______________________ = 0 Project Z _______________ ________________________ = 0

Problem 24-2A Part 4

4.

Determine each projects net present value using 9% as the discount rate. Assume that cash flows occur at each year-end. Project Y Chart values are based on: n= i= Select chart Amount x Table factor = Present Value __________________ ____________ _____________ = $ 0 _______________________________________________________________________________________ ________________________________________________________________________________________ Net present value ____________________ Project Z Chart values are based on: n= i= Select Chart Amount x Table factor = Present Value _________________ ____________ _____________ $ 0 _________________________________________________________________________________________ ___________________________________________________________________________________________ Net present value _______________________

Problem 24-3A Computation of cash flows and net present values with alternative depreciation methods LO P3

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

Manning Corporation is considering a new project requiring a $96,000 investment in test equipment with no salvage value. The project would produce $73,000 of pretax income before depreciation at the end of each of the next six years. The companys income tax rate is 34%. In compiling its tax return and computing its income tax payments, the company can choose between the two alternative depreciation schedules shown in the table. (PV of $1,FV of $1,PVA of $1, andFVA of $1)(Use appropriate factor(s) from the tables provided.

	Straight-Line Depreciation	MACRS Depreciation
Year 1		$	9,600			$	19,200
Year 2			19,200				30,720
Year 3			19,200				18,432
Year 4			19,200				11,059
Year 5			19,200				11,059
Year 6			9,600				5,530
Totals		$	96,000			$	96,000

Problem 24-3A Part 1

Required:

5.

Complete the following table assuming use of straight-line depreciation. Net cash flow equals the amount of income before depreciation minus the income taxes. Income before Deprecation| Straight-line Depreciation| Taxable Income| Income Taxes| Net cash Flows Year 1 _____________________________________________________________________________________________________________ Year 2 _____________________________________________________________________________________________________________ Year 3 ______________________________________________________________________________________________________________ Year 4 ______________________________________________________________________________________________________________ Year 5 ______________________________________________________________________________________________________________ Year 6 ______________________________________________________________________________________________________________

Problem 24-3A Part 2

6.

Complete the following table assuming use of MACRS depreciation. Net cash flow equals the income amount before depreciation minus the income taxes.

Income Before Depreciation| MACRS Depreciation| Taxable Income| Income Taxes| Net Cash Flows Year 1 ____________________________________________________________________________________________________________ Year 2 ____________________________________________________________________________________________________________ Year 3 _____________________________________________________________________________________________________________ Year 4 __________________________________________________________________________________________________________ Year 5 _______________________________________________________________________________________________________________ Year 6 _____________________________________________________________________________________________________________

Problem 24-3A Part 3

7.

Compute the net present value of the investment if straight-line depreciation is used. Use 10% as the discount rate.

Chart values are based on: i=_________________________ Year Net cash inflow x Table factor = Present Value 1 ________________ ___________ = _____________ 2 ________________ __________ = ____________ 3 ________________ ___________ = 4 ________________ ___________ = 5 _______________ ___________ = 6 _______________ __________ = ___________________________________________ __________________________________________ _________________ Net present value _________________

Problem 24-3A Part 4

8.

Compute the net present value of the investment if MACRS depreciation is used. Use 10% as the discount rate. Chart values are based on: i= ________________________ Year Net cash inflow x Table factor = Present Value Year 1 _______________ _____________ = _____________ Year 2 _______________ _____________ = _____________ Year 3 ________________ _____________ = Year 4 _______________ ______________ = Year 5 ______________ _____________ = Year 6 ______________ _______________ = _________________________________________________ ________________________________________________ _______________ Net present value _________________