Required information

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. (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		$	385,000			$	308,000
Expenses
Direct materials			53,900				38,500
Direct labor			77,000				46,200
Overhead including depreciation			138,600				138,600
Selling and administrative expenses			28,000				27,000
Total expenses			297,500				250,300
Pretax income			87,500				57,700
Income taxes (32%)			28,000				18,464
Net income		$	59,500			$	39,236

Problem 24-2A Part 1

Required: 1. Compute each projects annual expected net cash flows.

Required information 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. (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 $385,000 $308,000 Sales Expenses Direct materials Direct labor Overhead including depreciation Selling and administrative expenses Total expenses Pretax income Income taxes (32%) Net income 53,900 77,000 138, 600 28,000 297,500 87,500 28,000 $ 59,500 38,500 46,200 138,600 27,000 250, 300 57,700 18,464 $ 39,236 blem 24.ZA Dart 4 Required: 1. Compute each project's annual expected net cash flows. Project Y Project z 2. Determine each project's payback period. Payback Period Choose Numerator: 1 Choose Denominator: Payback Period Payback period Project Y Project Z = 3. Compute each project's accounting rate of return. Accounting Rate of Return Choose Denominator: Choose Numerator: II Accounting Rate of Return Accounting rate of return Il Project Y Project 2 4. Determine each project's net present value using 9% as the discount rate. Assume that cash flows occur at each year-end. (Round your intermediate calculations.) Project Y Chart values are based on: i = Select Chart Amount PV Factor = Present Value Net present value Project 2 Chart values are based on: n = i = Select Chart Amount X PV Factor Present Value = Net present value