Problem 24-3B Applying payback period, accounting rate of return, and net present value QP1 P2 P3 Lopez Co. can invest in one of two alternative projects. Project Y requires a $ 240,000 initial investment for new machinery with a four-year life and no salvage value. Project Z requires a $240,000 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. Annual Amounts Project Y Project Z $320,000 $350,000 Sales of new product Expenses Materials, labor, and overhead (except depreciation) DepreciationMachinery Selling, general, and administrative expenses Income 146,000 60,000 50,000 $ 64,000 150,000 70,000 40,000 $ 90,000 Required 1. Compute each project's annual net cash flows. 2. Compute each project's payback period. If the company bases investment decisions solely on payback period, which project will it choose? 3. Compute each project's accounting rate of return. If the company bases investment decisions solely on accounting rate of return, which project will it choose? 4. Compute each project's 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? Page 957 Problem 24-4B Applying net present value and profitability index OP3 Milan Co. is considering two alternative investment projects. Each requires a $300,000 initial investment. Project A is expected to generate net cash flows of $90,000 per year over the next five years. Project B is expected to generate net cash flows of $80,000 per year over the next six years. Management requires an 8% rate of return on its investments. Required 1. Compute each project's net present value. 2. Compute each project's profitability index. 3. If the company can choose only one project, which will it choose, based on profitability index