I can\'t figure out the remainder of this problem. please help /The following in

ID: 2608801 • Letter: I

Question

I can't figure out the remainder of this problem. please help

/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 $320,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $320,000 Investment for new machinery with a five-year lite and no salvage value. The two projects yteld the following predicted annual results. The company uses straight-line depreclation, and cash flows occur evenly throughout each year FV of S1. PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided) Project Yll :Project Sales S 370,000 $296.000 Direct materials Direct labor Overhead including depreciation Selting and administrative expenses 51.800 74.000 37.000 44.400 133.200133.200 26.000 26.000 Total expenses 285 000 240600 Pretax income Income taxes (30%) 5,00055.400 25.50016 620 Net i $ 59.50038780

Explanation / Answer

Calculation of cash flows

Particulars

Project Y

Project Z

Pre-tax income

$59,500

$38,780

Add: Overheads and depreciation

$133,200

Total

$192,700

$171,980

Less: Tax @ 30%

($57,810)

($51,594)

Cash flows

$134,890

$120,386

Life of project

6 years

5 years

Annuity factor

4.7665

4.1002

P.V of cash inflows

$642,953

$493,607

P.v of cash outflows

$320,000

Net present value

$322,953

$173,607

Rank

Recommendation

Project Y since NPV is more