# Compute each project's annual expected net cash flows. (Round the net cash flows to the nearest...

## Question:

Pleasant Company has an opportunity to invest in one of two new projects. Project Y requires a $700,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $700,000 investment for new machinery with a three-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 | $700,000 | $560,000 |

Expenses: | ||

Direct materials | 98,000 | 70,000 |

Direct labor | 140,000 | 84,000 |

Overhead including depreciation | 252,000 | 252,000 |

Selling and administrative expenses | 50,000 | 50,000 |

Total expenses | 540,000 | 456,000 |

Pretax income | 160,000 | 104,000 |

Income taxes (30%) | 48,000 | 31,200 |

Net income | $112,000 | $72,800 |

Required:

1. Compute each project's annual expected net cash flows. (Round the net cash flows to the nearest dollar.)

2. Determine each project's payback period. (Round the payback period to two decimals.)

3. Compute each project's accounting rate of return. (Round the percentage return to one decimal.)

## Investment:

It is the amount invested in the form of securities, bank account, or property. All types of investments provide future benefits either in the form of interest or capital gains on property.

## Answer and Explanation: 1

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View this answer1. Annual expected net cash flows

{eq}\begin{align*} {\rm\text{Depreciation Expense for Project Y}} &= \frac{{{\rm\text {Cost of Investment}} -...

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Chapter 8 / Lesson 4Learn about the time value of money, net present value, and discounted cash flow when it comes to building wealth. Money in hand today has more value than promised at a future date is known as the time value of money.

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