Business, 18.08.2020 17:01 Anaaguayo954
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $345,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $345,000 investment for new machinery with a five-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.
Project Y Project Z
Sales 360,000 288,000
Expenses
Direct materials 50,400 36,000
Direct labor 72,000 43,200
Overhead including depreciation 129,600 129,600
Selling and administrative expenses 26,000 26,000
Total expenses 278,000 234,800
Pretax income 82,000 53,200
Income taxes (38%) 31,160 20,216
Net income 50,840 32,984
Required:
a. Compute each project’s annual expected net cash flows.
b. Compute each project’s accounting rate of return.
c. Determine each project’s net present value using 6% as the discount rate. Assume that cash flows occur at each year-end.
Answers: 1
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Most Company has an opportunity to invest in one of two new projects. Project Y requires a $345,000...
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