Information for two alternative projects involving machinery investments follows. Project 1 requires an initial investment of $229,500. Project 2 requires an initial investment of $156,000. Annual AmountsProject 1Project 2Sales of new product$ 148,000$ 128,000Expenses Materials, labor, and overhead (except depreciation)77,00044,000Depreciation—Machinery32,00030,000Selling, general, and administrative expenses20,00032,000Income$ 19,000$ 22,000(a) Compute each project’s annual net cash flow.(b) Compute payback period for each investment. ### Financial Analysis of Two Projects#### Annual AmountsThe table below presents a comparison of two projects in terms of their income and corresponding expenses. Each project includes details on sales, various expenses, and net income.| Description | Project 1 | Project 2 ||-------------------------------------------------|---------------------------------------|---------------------------------------|| | **Income** | **Cash Flow** | **Income** | **Cash Flow** || **Sales of new product** | $148,000 | | $128,000 | || **Expenses** | | | | || - Materials, labor, and overhead (except depreciation) | $77,000 | | $44,000 | || - Depreciation—Machinery | $32,000 | | $30,000 | || - Selling, general, and administrative expenses | $20,000 | | $32,000 | || **Income** | $19,000 | | $22,000 | || **Net cash flow** | | | | |### Explanation- **Sales of new product**: Represents the total revenue generated from the sale of the new product for each project.- **Expenses**: This is subdivided into: - **Materials, labor, and overhead**: Direct costs associated with production, excluding machinery depreciation. - **Depreciation—Machinery**: Non-cash expense that spreads the cost of machinery over its useful life. - **Selling, general, and administrative expenses**: Overhead costs related to sales and overall administration.- **Income**: Calculated as total sales minus total expenses.- **Net cash flow**: Reflects the cash inflow and outflow, including adjustments for non-cash expenses like depreciation (though not filled in the table, it needs to be calculated). This table is useful for evaluating the financial viability and performance efficiency of each project based on their income and expenses. This diagram represents a table for calculating the Payback Period of two projects. The table is organized into several columns under the heading "Payback Period." The calculation involves the following components:1. **Numerator**: This column is intended for input values that will be divided. There are two rows corresponding to Project 1 and Project 2, each with empty fields for data entry.2. **Denominator**: This column is also for input values, one for Project 1 and another for Project 2, which will serve as the divisor in the payback period calculation.3. **Equal Sign Column**: Represents the operation of division between the corresponding numerator and denominator for each project.4. **Payback Period**: This column, highlighted in yellow, is meant for the result of the division, representing the payback period for each project.The table allows users to input the necessary numerators and denominators for each project to calculate and display the payback period.

Payback Period - The term "payback time" refers to the amount of years needed to recoup the initial…

Answered: mation for two alternative projects…

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

Annual Amounts	Project 1	Project 2
Sales of new product	$ 148,000	$ 128,000
Expenses
Materials, labor, and overhead (except depreciation)	77,000	44,000
Depreciation—Machinery	32,000	30,000
Selling, general, and administrative expenses	20,000	32,000
Income	$ 19,000	$ 22,000