Most Company has an opportunity to invest in one of two new projects. Project Y
ID: 2559722 • Letter: M
Question
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $340,000 investment for new machinery with a five-year life and no salvage value. Project Z requires a $340,000 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. (FV of $1, PV of $1, FVA of $1 and PVA 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 $340,000 investment for new machinery with a five-year life and no salvage value. Project Z requires a $340,000 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. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Required: 1. Compute each ect's annual expected net cash flows. Project Y Project ZExplanation / Answer
Computation of Project's annual expected net cash flows.
Project Y
Project Z
Net Income
$49,600
$32,240
Add: Depreciation expenses
$68,000
$85,000
Net cash flows
$1,17,600
$1,17,240
Computation of each Project's payback period.
Choose Numerator
/
Choose Denominator
=
Payback period
Investment
/
Annual net cash flows
=
Project Y
$3,40,000
$1,17,600
2.89
Project Z
$3,40,000
$1,17,240
2.90
Computation of Project's annual expected net cash flows.
Project Y
Project Z
Net Income
$49,600
$32,240
Add: Depreciation expenses
$68,000
$85,000
Net cash flows
$1,17,600
$1,17,240
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