Problem 11-2A Analysis and computation of payback period, accounting rate of ret

Question

Problem 11-2A Analysis and computation of payback period, accounting rate of retum, and net present value LO P1, P2, P3 [The following information applies to the questions displayed belowJ Most Company has an to invest in one of two new projects. Project Y requires a $310,000 investment for new machinery with a five-year life and no salvage value. Project Z requires a $310,000 investment for new machinery with a ife and no salvage value. The two projects yield the following predicted annual results. The company uses each year. Eyof$1. Eyof$1. PVAoSI, and EVAof 1 )(Use appropriate factor(s) from the tables provided.) $375,860 $388,80e Expenses 52,58037,58e 5,80045,880 135,888135,888 Direct labor ad including d expenses Pretax income Income taxes (343) 85, see5s, see 5 56,430 $ 36,638 Problem 11-2A Part 1 Requlred: 1. Compute each project's annual expected net cash flows

Explanation / Answer

1 Project Y Project Z Net Income 56430 36630 Add:Depriciation 310000/5,310000/4 62000 77500 Net Cash Flow 118430 114130 2 310000/118430 310000/114130 PAYBACK PERIOD 2.62 2.72 3 ARR=Net Income /average investment 56430/(310000/2) 36630/(310000/2) 36% 24% 4 Net Present Value    150,657                               59,747 Net Cash Flows PV of annuity @ 9% PV of Net Cash Flows 1 - 5 118430 3.8897                             460,657 Amount Invested 310000 Net Present value                             150,657 n=5 i=9 Net Cash Flows PV of annuity @ 9% PV of Net Cash Flows 1 - 4 114130 3.2397                             369,747 Amount Invested                             310,000 Net Present value                               59,747 n=4 i=9

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