Most Company has an opportunity to invest in one of two new projects. Project Y
ID: 2599519 • Letter: M
Question
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $305,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $305,000 investment for new machinery with a five-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.)
Project YProject Z Sales $375,000 $300,000 Expenses Direct materials 52,500 37,500 Direct labor 75,000 45,000 Overhead including depreciation 135,000 135,000 Selling and administrative expenses 27,000 27,000 Total expenses 289,500 244,500 Pretax income 85,500 55,500 Income taxes (34%) 29,070 18,870 Net income $56,430 $36,630
Explanation / Answer
1
Annual expected net cash flows:
Project Y
Project Z
Net income
56430
36630
Add: Depreciation
50833
61000
Free cash flow
107263
97630
*305000/6
*305000/5
2
Pay Back period:
Project Y
305000/107263
2.84 years
Project z
305000/97630
3.12 years
You didn’t provide what to find out, based on the question I find out these two. if you wants meto find out Npv, please provide NPV
1
Annual expected net cash flows:
Project Y
Project Z
Net income
56430
36630
Add: Depreciation
50833
61000
Free cash flow
107263
97630
*305000/6
*305000/5
2
Pay Back period:
Project Y
305000/107263
2.84 years
Project z
305000/97630
3.12 years
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.