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 four-year life and no salvage value. Project Z requires a $340,000 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. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
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Project Y
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Project Z
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Sales
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$
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370,000
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$
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330,000
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Expenses
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Direct materials
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51,800
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|
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41,250
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|
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Direct labor
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74,000
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|
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49,500
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Overhead including depreciation
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133,200
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148,500
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Selling and administrative expenses
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26,000
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29,000
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Total expenses
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285,000
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268,250
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Pretax income
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85,000
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61,750
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Income taxes (26%)
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22,100
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16,055
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Net income
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$
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62,900
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$
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45,695
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4. Determine each project's net present value using 8% as the discount rate. Assume that cash flows occur at each year-end.(Round your intermediate calculations.)
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Required:
1. Compute each project's annual expected net cash flows
2. Determine each project's payback period.
3. Compute each project's accounting rate of return.
4. Determine each project's net present value using 8% as the discount rate. Assume that cash flows occur at each year-end. (Round your intermediate calculations.)