9% is the discount rate. Required information Problem 25-2A Analysis and computa

Question

9% is the discount rate.

Required information Problem 25-2A Analysis and computation of payback period, accounting rate of return, and net present value LO P1, P2, P3 [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 $330,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $330,000 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. (PV of $1. FV of $1, PVA of $1, and FVA of $1 (Use appropriate factor(s) from the tables provided.) Project Y Project Z $365,000 $292,000 Sales Expenses Direct materials Direct labor Overhead including depreciation Selling and administrative expenses 51,100 73,000 36,500 43,800 131,400 131,400 26,000 237,706 54,300 18,462 $ 55,110 35,838 Total expenses Pretax income Income taxes (34%) Net income 26,000 281, 500 83,500 28,390

Explanation / Answer

Statement showing NPV and EAUC

Statement showing Payback period

Statement showing accounting rate of return

Particulars Project Y(for 6 year) Project Z(for 5 year) Net income 55110 35838 Add: depreciation 55000 66000 Cash flow 110110 101838 PVIFA @9% 4.4859 3.8897 PV 493942 396119 Less: initial investment 330000 330000 NPV 163942 66119 Capital recovery factor(inverse of PVIFA) 0.2229 0.2571 EAUC 36546 16999

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