Required information Problem 11-2A Analyzing and computing 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 $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 $400,000 $320,000 Expenses 56,000 40,000 Direct labor 80,000 48,000 Overhead including depreciation 144,000 144,000 Selling and administrative expenses 29,000 29,000 Total expenses 309,000 261,000 Pretax income 91,000 59,000 Income taxes (36%) $ 58,240 $ 37,760 Direct materials 32,760 21,240 Net income Problem 11-2A Part 1 Required: 1. Compute each project's annual expected net cash flows. Project Y Project Z Net income Depreciation expense Direct materials Income tax expense Problem 11-2A Part 2 2. Determine each project's payback period. Payback Period 1 Choose Denominator: Annual net cash flow Choose Numerator: Net income = = Payback Period Payback period 0 Project Y Project Z = Problem 11-2A Part 3 3. Compute each project's accounting rate of return. Accounting Rate of Return Choose Denominator: 1 Annual pre-tax income Choose Numerator: Annual average investment = Accounting Rate of Return Accounting rate of return 0 Project Y Project z 0