Accounting II – Payback Period, Accounting Rate of Return, and Net Present Value

Accounting II – Payback Period, Accounting Rate of Return, and Net Present Value

Most Company has an opportunity to invest in one of two new projects. Project Y requires a $305,000 investment for new machinery with a
six-year life and no salvage value. Project Z requires a $305,000 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.

	Project Y					Project Z
Sales		$	385,000				$	325,000
Expenses
Direct materials			53,900					40,625
Direct labor			77,000					48,750
Overhead including depreciation			138,600					146,250
Selling and administrative expenses			28,000					29,000
Total expenses			297,500					264,625
Pretax income			87,500					60,375
Income taxes (32%)			28,000					19,320
Net income		$	59,500				$	41,055

1. Compute each project’s annual expected net cash flows.

Project Y | Project Z

Net Income: |

Depreciation Expense: |

Expected Net Cash Flows: |

2. Determine each project’s payback period.

“Numerator”/”Demominator” = Payback Period

Project Y / =

Project Z / =

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

“Numerator”/”Demominator” = Accounting Rate of Return

Project Y / =

Project Z / =

4.Determine each project’s net present value using 10% as the discount rate. Assume that cash flows occur at each year-end.

Project Y

Chart values are based on: n= i=

Select Chart Amount X Table Factor = Present Value

Net Present Value =

Project Z

Chart values are based on: n= i=

Select Chart Amount X Table Factor = Present Value

Net Present Value =

Is this the question you were looking for? If so, place your order here to get started!