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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.)
Project Y
Project Z
Sales
$
370,000
330,000
Expenses
Direct materials
51,800
41,250
Direct labor
74,000
49,500
Overhead including depreciation
133,200
148,500
Selling and administrative expenses
26,000
29,000
Total expenses
285,000
268,250
Pretax income
85,000
61,750
Income taxes (26%)
22,100
16,055
Net income
62,900
45,695
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.)
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.)
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