Really need assistance with below problems on the steps with solving. Most Compa

Question

Really need assistance with below problems on the steps with solving.

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 four-year life and no salvage value. Project Z requires a $320,000 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 depreciation, and cash flows occur evenly throughout each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1).

Note: The Charts above will be at the end of the problems.

Project Y         Project Z

Sales                                                    $385,000       $315,000    

Expenses                    

      Direct materials                               53,900         39,375    

      Direct labor                                   77,000         47,250    

      Overhead including depreciation     138,600         141,750    

      Selling and administrative expenses     28,000         28,000    

Total expenses                                      297,500         256,375    

  Pretax income                                     87,500         58,625    

Income taxes (36%)                          31,500         21,105    

Net income                                       $56,000       $37,520    

1. Compute each project’s annual expected net cash flows.

Project Y

Project Z

2.Determine each project’s payback period.

PAYBACK PERIOD

Choose Numerator:

         /

Choose Denominator:

=

Payback Period

           /

=

Payback period

Project Y

=

Project Z

=

3. Compute each project’s accounting rate of return

Accounting Rate of Return

Choose Numerator:

           /

Choose Denominator:

=

Accounting rate of return

            /

=

Accounting rate of return

Project Y

=

Project Z

=

4. Determine each project’s net present value using 8% as the discount rate. Assume that cash flows occur at each year-end.

Project Y

Chart values are based on:

N =

I =

Select chart

Amount

x

Table factor

=

Present Value

                  ?

=

Net Present value

Project Z

Chart values are based on:

N =

I =

Select chart

Amount

x

Table factor

=

Present Value

        ?          

=

Net Present value

Project Y

Project Z

      ?         ?          ?      ?      ?         ?      ?        ?        ?      ?            ?           ?

Explanation / Answer

1. Computation of each project’s annual expected net cash flows.

Project Y

Project Z

2.Determination of each project’s payback period.

PAYBACK PERIOD

Choose Numerator:

         /

Choose Denominator:

=

Payback Period

=

Payback period

Project Y

48000(320000 - 136000*2)

= 0.35

Project Z

= 0.23

3. Computation of each project’s accounting rate of return

Accounting Rate of Return

Choose Numerator:

           /

Choose Denominator:

=

Accounting rate of return

            /

=

Accounting rate of return

Project Y

= 0.35

Project Z

= 0.2345

4. Determination of each project’s net present value using 8% as the discount rate.

PROJECT Y

PARTICULARS YEAR CASH FLOW TABLE FACTOR PRESENT VALUE

Machinery purchased 0 (320000) 1 (320000)

BDAT 1-4 136000 3.31 450160

NPV 130160

PROJECT Z

Machinery purchased 0 (320000) 1 (320000)

BDAT 1-3 144187 2.58 372002

   NPV 52002   

PARTICULARS

Project Y

Project Z

SALES 385000 315000 CASH EXPENSES 297500 256375 PRETAX INCOME 87500 58625 INCOME TAX (36%) 31500 21105 NET INCOME 56000 37520
DEPRECIATION 80000 106667 BDAT 136000 144187

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