Required information The following information applies to the questions displaye

Question

Required information 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 $350,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $350,000 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. EV of $1. PVA of $1, and FVA of S1 (Use appropriate factor(s) from the tables provided.) Project Y Project $350,000 $280,000 Sales Expenses Direct materials Direct labor Overhead including depreciation Selling and administrative expenses 49,000 35,000 70,000 42, 000 126,000 126,000 25,000 25,000 270,000 228,000 80,000 52,000 24,000 15,600 Total expenses Pretax income Income taxes (30) Net income 56,000 36,400

Explanation / Answer

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. 1. Annual expected Net Cash Flow: Project Y Project Z Net Income 56000 36400 Add: Non Cash Expenses: Depreciation 350000/4 87500 350000/3 116667 Annual Expected Net Cash Flow 143500 153067 2. Payback Period Cost of Investment/ Annual Net Cash Flow Pay Back period Project Y 350000 143500 2.44 Year Project Z 350000 153067 2.29 Year 3. Accounting Rate of Return (ARR) Net Income/ Average Investment ARR Project Y 56000 350000 16.00% Project Z 36400 350000 10.40% 4. NPV Project Y n= 4 i= 8% PVF/PVAF Present Value Initial Investment -350000 1 -350000 Annual Net Cash Flow 143500 3.3121 475290 Net Present Value 125290 Project Z n= 3 i= 8% PVF/PVAF Present Value Initial Investment -350000 1 -350000 Annual Net Cash Flow 153067 2.5771 394468 Net Present Value 44468

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