The following information applies to the questions displayed below. Most Company

Question

The following information applies to the questions displayed below. Most Company has an opportunlty to Invest in one of two new projects. Project Y requires 350.000 investment for new machinery with a four-year lfe and no salvage value. Project Z requires a $350,000 investment for new machinery with a three-year fe and no salvage value. The two projects yield the following predicted annual results. The company uses straight-line depreciation, and cash tlows 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 Y Project Z 350,000 280,000 Sales Expenses Direct materials Direct labor Overhead including depreciation Selling and administrative expenses 49,000 70,000 126,000 25,000 35,000 42.000 126,000 25,000 0.76 points 3. Compute each project's accounting rate of return. Total expenses 270,000 228,000 Choose Numerator: Rate of Accounting rate of return Pretax Income income taxes (30%) 80,000 24.000 52.000 15,600 Project Y Project 2 Net income $56,000 36,400

Explanation / Answer

Choose numerator / Choose denomirator = Accounting rate of return Project Y $                      56,000 / $                        350,000 = 16.00% Project Z $                      36,400 / $                        350,000 = 10.40%

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