Project Y Project Z Sales . $350,000 $280,000 Expenses Direct materials . 49,000 35,000 Direct labor.... 70,000 42,000 Overhead including depreciation 126,000 126,000 Selling and administrative expenses. 25,000 25,000 228,000 Total expenses Pretax income.. 270,000 80,000 52,000 Income taxes (30%) 24,000 15,600 $ 36,400 Net income $ 56,000 Required 1. Compute each project's annual ex pected net cash flows. (Round the net cash flows to the nearest dollar.) 2. Determine each project's payback period. (Round the payback period to two decimals.) 3. Compute each project's accounting rate of return. (Round the percentage return to one decimal.) 4. Determine each project's net present value using 8% as the discount rate. For part 4 only, assume that cash flows occur at each year-end. (Round the net present value to the nearest dollar.)
Project Y Project Z Sales . $350,000 $280,000 Expenses Direct materials . 49,000 35,000 Direct labor.... 70,000 42,000 Overhead including depreciation 126,000 126,000 Selling and administrative expenses. 25,000 25,000 228,000 Total expenses Pretax income.. 270,000 80,000 52,000 Income taxes (30%) 24,000 15,600 $ 36,400 Net income $ 56,000 Required 1. Compute each project's annual ex pected net cash flows. (Round the net cash flows to the nearest dollar.) 2. Determine each project's payback period. (Round the payback period to two decimals.) 3. Compute each project's accounting rate of return. (Round the percentage return to one decimal.) 4. Determine each project's net present value using 8% as the discount rate. For part 4 only, assume that cash flows occur at each year-end. (Round the net present value to the nearest dollar.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $350,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $350,000 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
Transcribed Image Text:Project Y
Project Z
Sales .
$350,000
$280,000
Expenses
Direct materials .
49,000
35,000
Direct labor....
70,000
42,000
Overhead including depreciation
126,000
126,000
Selling and administrative expenses.
25,000
25,000
228,000
Total expenses
Pretax income..
270,000
80,000
52,000
Income taxes (30%)
24,000
15,600
$ 36,400
Net income
$ 56,000
Required
1. Compute each project's annual ex pected net cash flows. (Round the net cash flows to the nearest dollar.)
2. Determine each project's payback period. (Round the payback period to two decimals.)
3. Compute each project's accounting rate of return. (Round the percentage return to one decimal.)
4. Determine each project's net present value using 8% as the discount rate. For part 4 only, assume that
cash flows occur at each year-end. (Round the net present value to the nearest dollar.)
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