Question

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 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

Most company

Accounting rate of return = Net income/ Initial investment

Project	Calculations ($)	accounting rate of return
Y	57,400/310,000	18.52%
Z	37,240/310,000	12.01%

Numerator = Net income

Denominator = Initial investment