Question

Discount rate is 9%

of 4 Required information Problem 11-2A Analyzing and computing 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.) ook Project Y Project 2 $365,000 $292,000 int rences Sales Expenses Direct materials Direct labor Overhead including depreciation Selling and administrative expenses Total expenses Pretax income Income taxes (301) Net Income 51,100 73,000 131,400 26.000 281,500 83,500 25.050 58,450 36,500 43,800 131,400 26,000 237, 700 54,300 16,290 $ 30,010 Problem 11-2A Part 4 4. Determine each project's not present value using 9% as the discount rate. Assume that cash flows occur at each year-end. (Round

Answer 1

Answer Project Y Chart values are based on: n=14 i= 9% Select Chart Present Value of an Annuity of 1 X Amount $1,44,700 PV Factor 3.2397 Present Value $4,68,785 X = Present Value of Cash Inflows Present Value of Cash Outflows Net Present Value $4,68,785 $3,45,000 $1,23,785 Project z Chart values are based on: n=3 i= 9% Select Chart Present Value of an Annuity of 1 х = Amount $1,53,010 PV Factor 2.5313 Present Value $3,87,314 х = Present Value of Cash Inflows Present Value of Cash Outflows Net Present Value $3,87,314 $3,45,000 $42,314 Expected Net Cash Flow = Net Income + Depreciation Project Y = $58,450 + ($345,000 / 4 yrs) = $58,450 + $86,250 = $144,700 Project Z = $38,010 + ($345,000 / 3 yrs) = $38,010 + $115,000 = $153,010