most company has an opportunity to invest in one of two new projects project y requi 1553751

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 project yield the following predicted annual results. The company uses straight line depreciation, and cash flows occur evenly throughout the year.

Project Y Project Z

Sales $350,000 $280,000

Expenses

Direct materials 49,000 35,000

Direct labor 70,000 42,000

Overhead incl. depreciation 126,000 126,000

Selling & admin expenses 25,000 25,000

Total expenses 270,000 228,000

Pretax income 80,000 52,000

Income taxes (30%) 24,000 15,600

Net Income $56,000 $36,400

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

2. Determine each project’s payback period

3. Compute each project’s accounting rate of return

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