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 $345,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $345,000 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) (Use appropriate factor(s) from the tables provided.)

	Project Y				Project Z
Sales		$	370,000			$	296,000
Expenses
Direct materials			51,800				37,000
Direct labor			74,000				44,400
Overhead including depreciation			133,200				133,200
Selling and administrative expenses			26,000				26,000
Total expenses			285,000				240,600
Pretax income			85,000				55,400
Income taxes (38%)			32,300				21,052
Net income		$	52,700			$	34,348

Problem 25-2A Part 1

Required: 1. Compute each projects annual expected net cash flows.

Problem 25-2A Part 2

2. Determine each projects payback period.

Problem 25-2A Part 3

3. Compute each projects accounting rate of return.

Problem 25-2A Part 4

4. Determine each projects net present value using 10% as the discount rate. Assume that cash flows occur at each year-end. (Round your intermediate calculations.)

Project Z Project Y Payback Period Choose Numerator: Choose Denominator: Payback Period Payback period Project Y Project Z Accounting Rate of Return Accounting Rate of Return Choose Numerator: Choose Denominator: = Accounting rate of return Project Y Project Z Project Y Chart values are based on: Select Chart X PV FactorPresent Value Amount Net present value Project Z Chart values are based on: Select Chart Amount X PV FactorPresent Value Net present value