Reference no: EM133087242

Question - Analyzing and computing payback period, accounting rate of return, and net present value -Aikman Company has an opportunity to invest in one of two projects. Project A requires a $240,000 investment for new machinery with a four-year life and no salvage value. Project B also requires a $240,000 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.

Sales project a. $250,000 project b. 200,000. EXPENSES: direct materials project a. $35,000 project b. 25,000 direct labor project a. 50,000 project b. 30,000. Overhead including depreciation project a. 90,000 project b. 90,000 selling and admin expenses project a. 18,000 project b 18,000 total selling expenses project a 193,000 project b. 163,000 Pretax income project a. 57,000 project b 37,000 income taxes (30%) project a. 17,100 project b. 11,100 Net income project a. 39,900 project b. 25,900.

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. For part 4 only, assume that cash flows occur at each year-end.

5. Identify the project you would recommend to management and explain your choice.