Opportunity to invest, Most Company has an opportunity to

Opportunity to invest

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Reference no: EM13912870

Most Company has an opportunity to invest in one of two new projects. Project Y requires a $315,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $315,000 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. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

	Project Y			Project Z
Sales		$	395,000		$	320,000
Expenses
Direct materials			55,300			40,000
Direct labor			79,000			48,000
Overhead including depreciation			142,200			144,000
Selling and administrative expenses			28,000			29,000

Total expenses			304,500			261,000

Pretax income			90,500			59,000
Income taxes (28%)			25,340			16,520

Net income		$	65,160		$	42,480

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.

Reference no: EM13912870

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