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 2. Determine each project's payback period. Payback Period Choose Denominator: Choose Numerator: Payback Period Payback period Project Y Project 2

Answer 1

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Pay back period
	Choose numerator	/	Choose denominator	=	Pay back period
	Initial Investments	/	Annual Cash Flows	=	Pay back period
Project Y	$                   3,10,000	/	$                                             1,19,400	=	2.6	years
Project Z	$                   3,10,000	/	$                                             1,14,740	=	2.7	years
Project Y
Annual cash Inflow	=	Depreciation + Annual Income
	=	[($310000 - $0)/5] + $57400
	=	$ 1,19,400
Project Z
Annual cash Inflow	=	Depreciation + Annual Income
	=	[($310000 - $0)/4] + $37240
	=	$ 1,14,740