Question

Required information [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 $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 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. (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 $360,000 $288,000 Sales Expenses Direct materials Direct labor Overhead including depreciation Selling and administrative expenses Total expenses Pretax income Income taxes (30%) Net income 50, 400 72,000 129,600 26, 000 278,000 82,000 24,600 $ 57,400 36,000 43, 200 129,600 26, 000 234,800 53,200 15,960 $ 37,240 4. Determine each project's net present value using 8% as the discount rate. Assume that cash flows occur at each year-end. (Round your intermediate calculations.)

Answer 1

Answer-4)-

Project X	Chart Values are based on:
	n=	5 years
	i=	8%
CASH FLOW	SELECT CHART	AMOUNT	x	PV FACTOR	=	PRESENT VALUE
		$		8%		$
Annual cash flow	Present value of an Annuity 1	119400	x	3.9927		476728
	Present value of cash inflows					476728
	Immediate cash outflows					310000
	Net present value					166728

Where- Annual cash inflow = Net income+ Annual depreciation

= $57400+$62000

= $119400

Explanation- Straight line Method- Depreciation Expense Annual

= Cost of asset- Salvage value of asset/No. of useful life (years)

=($310000-$0)/5 years

=$310000/5 years

= $62000

Project Y	Chart Values are based on:
	n=	5 years
	i=	8%
CASH FLOW	SELECT CHART	AMOUNT	x	PV FACTOR	=	PRESENT VALUE
		$		8%		$
Annual cash flow	Present value of an Annuity 1	114740	x	3.3121		380030
	Present value of cash inflows					380030
	Immediate cash outflows					310000
	Net present value					70030

Where- Annual cash inflow = Net income+ Annual depreciation

= $37240+$77500

= $114740

Explanation- Straight line Method- Depreciation Expense Annual

= Cost of asset- Salvage value of asset/No. of useful life (years)

=($310000-$0)/4 years

=$310000/4 years

= $77500