Most Company has an opportunity to invest in one of two new projects. Project Y
ID: 2393794 • Letter: M
Question
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $335,000 investment for new machinery with a five-year life and no salvage value. Project Z requires a $335,000 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, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $335,000 investment for new machinery with a five-year life and no salvage value. Project Z requires a $335,000 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, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Project Y Project 2 $385,000 $308,000 Sales Expenses 38,500 46,200 138,600 138,600 27,000 297,500 250,300 57,700 31,500 20,772 $56,000 36,928 Direct materials Direct labor Overhead including depreciation Selling and administrative expenses 53,900 77,000 28,000 87,500 Total expenses Pretax income Income taxes (36%) Net income 3. Compute each project's accounting rate of return. Accounting Rate of Return Accounting Rate of Return Choose Numerator: Choose Denominator: Accounting rate of return Project Y Project ZExplanation / Answer
Project Y Project Z Annual net income after tax 56000 36928 Average Investment 167500 167500 (Initial Investmnt+Salvage) /2 Accounting rate of Return: Annual Net income / Average Investment = Acounting Rate of return Project Y 56000 167500 33.43% Project Z 36928 167500 22.05%
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