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Problem 26-3A (Algo) Applying payback period, accounting rate of return, and net present value LO P1, P2, P3 Garcia Company can invest in one of two alternative projects. Project Y requires a $420,000 initial investment for new machinery with a four-year life and no salvage value. Project Z requires a $432,000 initial investment for new machinery with a three-year life and no salvage value. The two projects yield the following annual results. Cash flows occur evenly within each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Required: 1. Compute each project's annual net cash flows. Project Y $ 430,000 Project Z $530,000 206,000 144,000 56,000 $ 73,000 $ 124,000 196,000 105,000 56,000 2. Compute each project's payback period. If the company bases investment decisions solely on payback period, which project will it choose? 3. Compute each project's accounting rate of return. If the company bases investment decisions solely on accounting rate of return, which project will it choose? 4. Compute each project's net present value using 7% as the discount rate. If the company bases investment decisions solely on net present value, which project will it choose? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute each project's annual net cash flows. Annual Amounts Sales of new product Expenses Project Y Project Z Income Cash Flow Income Cash Flow $ 430,000 $ 430,000 Materials, labor, and overhead (except depreciation) 196,000 206,000 Depreciation-Machinery 105,000 144,000 Selling, general, and administrative expenses 56,000 56,000 Income $ 73,000 $ (406,000) Net cash flow $ 430,000 $ 0 < Required 1 Required 2 >

Problem 26-3A (Algo) Applying payback period, accounting rate of return, and net present value LO P1, P2, P3 Garcia Company can invest in one of two alternative projects. Project Y requires a $420,000 initial investment for new machinery with a four-year life and no salvage value. Project Z requires a $432,000 initial investment for new machinery with a three-year life and no salvage value. The two projects yield the following annual results. Cash flows occur evenly within each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Required: 1. Compute each project's annual net cash flows. Project Y $ 430,000 Project Z $530,000 206,000 144,000 56,000 $ 73,000 $ 124,000 196,000 105,000 56,000 2. Compute each project's payback period. If the company bases investment decisions solely on payback period, which project will it choose? 3. Compute each project's accounting rate of return. If the company bases investment decisions solely on accounting rate of return, which project will it choose? 4. Compute each project's net present value using 7% as the discount rate. If the company bases investment decisions solely on net present value, which project will it choose? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute each project's annual net cash flows. Annual Amounts Sales of new product Expenses Project Y Project Z Income Cash Flow Income Cash Flow $ 430,000 $ 430,000 Materials, labor, and overhead (except depreciation) 196,000 206,000 Depreciation-Machinery 105,000 144,000 Selling, general, and administrative expenses 56,000 56,000 Income $ 73,000 $ (406,000) Net cash flow $ 430,000 $ 0 < Required 1 Required 2 >

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 5BE
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Problem 26-3A (Algo) Applying payback period, accounting rate of return, and net present value LO P1, P2, P3 Garcia Company can invest in one of two alternative projects. Project Y requires a $420,000 initial investment for new machinery with a four-year life and no salvage value. Project Z requires a $432,000 initial investment for new machinery with a three-year life and no salvage value. The two projects yield the following annual results. Cash flows occur evenly within each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Required: 1. Compute each project's annual net cash flows. Project Y $ 430,000 Project Z $530,000 206,000 144,000 56,000 $ 73,000 $ 124,000 196,000 105,000 56,000 2. Compute each project's payback period. If the company bases investment decisions solely on payback period, which project will it choose? 3. Compute each project's accounting rate of return. If the company bases investment decisions solely on accounting rate of return, which project will it choose? 4. Compute each project's net present value using 7% as the discount rate. If the company bases investment decisions solely on net present value, which project will it choose? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute each project's annual net cash flows. Annual Amounts Sales of new product Expenses Project Y Project Z Income Cash Flow Income Cash Flow $ 430,000 $ 430,000 Materials, labor, and overhead (except depreciation) 196,000 206,000 Depreciation-Machinery 105,000 144,000 Selling, general, and administrative expenses 56,000 56,000 Income $ 73,000 $ (406,000) Net cash flow $ 430,000 $ 0 < Required 1 Required 2 >
Transcribed Image Text:Problem 26-3A (Algo) Applying payback period, accounting rate of return, and net present value LO P1, P2, P3 Garcia Company can invest in one of two alternative projects. Project Y requires a $420,000 initial investment for new machinery with a four-year life and no salvage value. Project Z requires a $432,000 initial investment for new machinery with a three-year life and no salvage value. The two projects yield the following annual results. Cash flows occur evenly within each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Required: 1. Compute each project's annual net cash flows. Project Y $ 430,000 Project Z $530,000 206,000 144,000 56,000 $ 73,000 $ 124,000 196,000 105,000 56,000 2. Compute each project's payback period. If the company bases investment decisions solely on payback period, which project will it choose? 3. Compute each project's accounting rate of return. If the company bases investment decisions solely on accounting rate of return, which project will it choose? 4. Compute each project's net present value using 7% as the discount rate. If the company bases investment decisions solely on net present value, which project will it choose? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute each project's annual net cash flows. Annual Amounts Sales of new product Expenses Project Y Project Z Income Cash Flow Income Cash Flow $ 430,000 $ 430,000 Materials, labor, and overhead (except depreciation) 196,000 206,000 Depreciation-Machinery 105,000 144,000 Selling, general, and administrative expenses 56,000 56,000 Income $ 73,000 $ (406,000) Net cash flow $ 430,000 $ 0 < Required 1 Required 2 >
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