The following information applies to the questions displayed below. Most Company
ID: 2793487 • Letter: T
Question
The following information applies to the questions displayed below. 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 depreciation, and cash flows occur evenly throughout each year. EV of $1, PV of $1 FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Project Y Project Z S350,000 S280,000 Direct materials Direct labor Overhead including depreciation Selling and administrative expenses 49,000 70,000 35.000 26,000 42000 25000 126000 Total expenses 270,000 228,000 80000 15.600 Pretax income Income taxes (30%) 24,00052.000 Net income S 56,000 S 36,400Explanation / Answer
Your given answer is correct. Although, for project Z, you incorrectly took initial investment as $700,000 instead of $350,000. Other than that, everything is correct. I am not sure if you want the answer too, but I'll provide them anyway.
Project Y
Cash Inflows per year = Net Income + Depreciation per year = $56000 + ($350000 / 4) = $143,500
NPV = (-)Initial Investment + Cash Inflows per year x PVIFA (8%, 4) = (-)$350,000 + $143,500 x 3.3121 = $125,286.35 or $125,286
Project Z
Cash Inflows per year = $36400 + ($350000 / 3) = $153,066.6666666 or $153,067
NPV = (-)$350,000 + $153,067 x 2.5771 = $44,468.9657 or $44,469
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.