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 $315,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $315,000 investment for new machinery with a five-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 $380,000 $304,000 Sales Expenses Direct materials 38,000 45,600 136,800 27,000 53,200 76,000 136,800 27,e00 Direct labor Overhead including depreciation Selling and administrative expenses Total expenses 293,000 87,000 33,060 247,400 56,600 Pretax income 21,508 Income taxes (38%) $ 53,940 $ 35,092 Net income Problem 24-2A Part 1 Required: 1. Compute each project's annual expected net cash flows. Project Z Project Y 35,092 53,940 $ Net income 63,000 52,500 Depreciation expense 98,092 106,440 2$ 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 $315,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $315,000 investment for new machinery with a five-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, EV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Project Y Project z $304,000 $380,000 Sales Expenses Direct materials 38,000 45,600 136,800 27,000 247,400 56,600 21,508 $ 35,092 53,200 76,000 136,800 27,000 293,000 87,000 33,060 Direct labor Overhead including depreciation Selling and administrative expenses Total expenses Pretax income Income taxes (38%) $ 53,940 Net income Problem 24-2A Part 2 2. Determine each project's payback period. Payback Period Payback Period Choose Denominator: Choose Numerator:/ IAnnual net cash flow 106,440= Payback period Cost of investment 2.96 years 315,000/ %24 Project Y 3.21 years 98,092 = 315,000 Project Z 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 $315,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $315,000 investment for new machinery with a five-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 $380,e00 Sales $304,000 Expenses Direct materials 53,200 76,000 136,800 27,e00 293,000 38,000 45,600 Direct labor Overhead including depreciation Selling and administrative expenses Total expenses 136,800 27,000 247,400 Pretax income Income taxes (38%) 87,eee 56,600 33,060 21,508 $ 53,940 $ 35,092 Net income Problem 24-2A Part 3 3. Compute each project's accounting rate of return. Accounting Rate of Return Accounting Rate of Choose Numerator: Choose Denominator: Return Annual after-tax net income I [Annual average investment Accounting rate of return Project Y Project Z 53,940 / 157,500 34.2 % 35,092 2$ 157,500 22.3 % %3D Most Company has an opportunity to invest in one of two new projects. Project Y requires a $315,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $315,000 investment for new machinery with a five-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 EV of $1. PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Project Y Project Z $380,000 $384, 000 Sales Expenses Direct materials 53,208 38,000 45,600 Direct labor 76,e00 136,800 27.e00 Overhead including depreciation Selling and administrative expenses Total expenses Pretax income Income taxes (38X) 136,800 27,eee 247,400 293,000 87,000 33,060 $ 53,940 56,600 21,se8 Net income $ 35,092 Problem 24-2A Part 4 4. Determine each project's net present value using 7% as the discount rate. Assume th flows occur at each year-end. (Round your intermediate calculations.) Project Y Chart values are based on: 7% Select Chart Amount PV Factor Present Value %3D Present Value of an Annuity of 1 106,440 x Present value of cash inflows Present value of cash outflows (315,000) Net present value Project Z Chart values are based on: Select Chart Amount PV Factor Present Value Present Value of an Annuity of 1 98,092 x Present value of cash inflows Present value of cash outflows (315,000) Net present value