Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Can you please check my work
Transcribed Image Text:Most Company has an opportunity to invest in one of two new projects. Project Y requires a $305,000 investment for new
machinery with a four-year life and no salvage value. Project Z requires a $305,000 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
$385,000
Sales
$308,000
Expenses
Direct materials
53,900
77,000
138,600
28,000
297,500
87,500
22,750
$ 64,750 $ 42,698
38,500
46,200
138,600
27,000
250,300
57,700
15,002
Direct labor
Overhead including depreciation
Selling and administrative expenses
Total expenses
Pretax income
Income taxes (26%)
Net income
3. Compute each project's accounting rate of return.
Accounting Rate of Return
Choose Numerator:
Choose Denominator:
Accounting Rate of Return
%3D
Annual after-tax net income
I [Annual average investment
Accounting rate of return
%3D
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Transcribed Image Text:Selling and administrative expenses
Total expenses
28,000
297,500
87,500
22,750
$ 64,750
21,000
250,300
57,700
15,002
$ 42,698
Pretax income
Income taxes (26%)
Net income
Compute each project's accounting rate of return.
Accounting Rate of Return
Choose Numerator:
Choose Denominator:
%3D
Accounting Rate of Return
Annual after-tax net income
Annual average investment
Accounting rate of return
%3D
Project Y
$
59,850
2$
152,500
%3D
39.2 %
Project Z
2$
38,850
152,500
25.5 %
%3D
%24
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