Answered: project’s annual expected net cash…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Most Company has an opportunity to invest in one of two new projects. Project Y requires a $320,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $320,000 investment for new machinery with a five-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.

Compute each project’s annual expected net cash flows.

	Project Y	Project Z
Sales		$	385,000	$	308,000
Expenses
Direct materials			53,900		38,500
Direct labor			77,000		46,200
Overhead including depreciation			138,600		138,600
Selling and administrative expenses			28,000		27,000
Total expenses			297,500		250,300
Pretax income			87,500		57,700
Income taxes (38%)			33,250		21,926
Net income		$	54,250	$	35,774

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