Pleasant Company has an opportunity to invest in one of two new projects. Projec

Question

Pleasant Company has an opportunity to invest in one of two new projects. Project Y requires a $345,000 investment for new machinery with a five-year life and no salvage value. Project Z requires a $345,000 investment for new machinery with a four-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. (Use Table B.3) Project Y Project Z Sales $ 365,000 $ 305,000 Expenses Direct materials 51,100 38,125 Direct labor 73,000 45,750 Overhead including depreciation 131,400 137,250 Selling and administrative expenses 26,000 27,000 Total expenses 281,500 248,125 Pretax income 83,500 56,875 Income taxes (38%) 31,730 21,613 Net income $ 51,770 $ 35,262 rev: 08_13_2011 a. Compute each project

Explanation / Answer

Hi, Only Straight Line Method is mentioned in the question. So I am providing details for that only. Annual Depreciation for Each Year would be: = (48000-4000)/5 = 8800 Accumulated Depreciation Year 1 = 8800 Year 2 = 17600 Year 3 = 26400 Year 4 = 35200 Year 5 = 44000 Book Value Year 1 = 44000 - 8800 = 35200 Year 2 = 44000 - 17600 = 26400 Year 3 = 44000 - 26400 = 17600 Year 4 = 44000 - 35200 = 8800 Year 5 = 44000 - 44000 = 0 Thanks.

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