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 $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 yleld 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 $375,000 $380,880 Sales Expenses Direct materials Direct labor Overhead including depreciation Selling and administrative expenses Total expenses Pretax income Income taxes (38%) Net income 52,500 75,000 135,890 27,880 289,582 85,500 32,492 $ 53,010 37,500 45,800 135,800 27,880 244,500 55,500 21,899 $ 34,410

Answer 1

Project Y
Chart values are based on:
n =	4
i =	8%
Select Chart	Amount	x	PV Factor	=	Present Value
Present value of an annuity of 1	139260	x	3.3121	=	461243
Present value of cash inflows					461243
Present value of cash outflows					345000
Net present value					116243
Project Z
Chart values are based on:
n =	3
i =	8%
Select Chart	Amount	x	PV Factor	=	Present Value
Present value of an annuity of 1	149410	x	2.5771	=	385045
Present value of cash inflows					385045
Present value of cash outflows					345000
Net present value					40045
Workings:
	Project Y	Project Z
Net income	53010	34410
Add: Depreciation	86250	115000
Annual cash flows	139260	149410