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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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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