Most Company has an opportunity to invest in one of two new projects. Project Y

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.) Project Y Project Z $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 Required: 1. Compute each project's annual expected net cash flows Project Y Project Z

Explanation / Answer

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Computation of expected annual cash flows Particulars Project Y Project Z Net Income $56,000.00 $36,928.00 Add: Depreciation $67,000.00 $83,750.00 Expected annual cash flows $123,000.00 $120,678.00

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