Required information Problem 24-2A 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 $320,000 investment for new machinery with a five-year life and no salvage value. Project Z requires a $320,000 investment for new machinery with a four 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 S1, and EVA of $1 ) (Use appropriate factor(s) from the tables provided.) Project Y Project $375,000 $300,000 Sales Expenses Direct materials Direct labor Overhead including depreciation Selling and administrative expense Total expenses Pretax income Income taxes (341) Set income 52.500 75,000 135,000 27.000 289,500 85,500 9,070 37,500 45.000 135.000 27.000 244,500 55.500 18,870 56.430 Problem 24-2A Part 1 Required: 1. Compute each project's annual expected net cash flow Project Project Z Direct materials Direct labor Overhead including depreciation Selling and administrative expenses Total expenses Pretax income Income taxes (348) Net income 52,500 75,000 135,000 27,000 289,500 85,500 29,070 $ 56,430 37,500 45,000 135,000 27,000 244,500 55,500 18,870 $ 36,630 Problem 24-2A Part 1 ook Required: 1. Compute each project's annual expected net cash flows. Project Y Project z ences Project Y Project 2 $375,000 $300,000 Sales Expenses Direct materials Direct labor Overhead including depreciation Selling and administrative expenses Total expenses Pretax income Income taxes (348) Net income 52,500 75,000 135,000 27,000 289,500 85,500 29,070 $ 56, 430 37,500 45,000 135,000 27,000 244,500 55,500 18.870 $ 36,630 Problem 24-2A Part 2 2. Determine each project's payback period Payback Period 1 Choose Denominator: Choose Numerator: = Payback Period Payback period Project Y Project Z Project Y Project z $375,000 $300,000 Sales Expenses Direct materials Direct labor Overhead including depreciation Selling and administrative expenses Total expenses Pretax income Income taxes (348) Net income 52,500 75.000 135,000 27,000 289,500 85,500 29,070 $ 56, 430 37,500 45.000 135,000 27,000 244,500 55,500 18,870 $ 36,630 Problem 24-2A Part 3 3. Compute each project's accounting rate of return. Accounting Rate of Return Choose Denominator: Choose Numerator: Accounting Rate of Return Accounting rate of return Project Y Project Z Required information discount rate. Assume that cash flows occur at each year-end. (Round > 3 4. Determine each project's net present your intermediate calculations.) Project Y Chart values are based on: FT o Select Chart Amount * PV Factor - Present Value > - 3 ST E TITI E 6 ET 53 Net present value TIF 18 Project Z Chart values are based on: ILL I. Select Chart 9 Present Value Net present value 9
