Question

Most Company has an opportunity to invest in one of two new projects. Project Y requires a $315,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $315,000 investment for new machinery with a five-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		$	365,000			$	292,000
Expenses
Direct materials			51,100				36,500
Direct labor			73,000				43,800
Overhead including depreciation			131,400				131,400
Selling and administrative expenses			26,000				26,000
Total expenses			281,500				237,700
Pretax income			83,500				54,300
Income taxes (40%)			33,400				21,720
Net income		$	50,100			$	32,580

3. Compute each project’s accounting rate of return.

	Accounting Rate of Return Choose Numerator: / Choose Denominator: = Accounting Rate of Return / = Accounting rate of return Project Y Project Z

Answer 1

Answer: