Most Company has an opportunity to invest in one of two new projects. Project Y requires a $320,000 investment for new machinery with a five-year life and no salvage value. Project Z requires a $320,000 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 Sales $ 385,000 $ 308,000 Expenses Direct materials 53,900 38,500 Direct labor 77,000 46,200 Overhead including depreciation 138,600 138,600 Selling and administrative expenses 28,000 27,000 Total expenses 297,500 250,300 Pretax income 87,500 57,700 Income taxes (28%) 24,500 16,156 Net income $ 63,000 $ 41,544 Problem 25-2A Part 4 4. Determine each project’s net present value using 7% as the discount rate. Assume that cash flows occur at each year-end. (Round your intermediate calculations.)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...

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Most Company has an opportunity to invest in one of two new projects. Project Y requires a $320,000 investment for new machinery with a five-year life and no salvage value. Project Z requires a $320,000 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
Sales		$	385,000	$	308,000
Expenses
Direct materials			53,900		38,500
Direct labor			77,000		46,200
Overhead including depreciation			138,600		138,600
Selling and administrative expenses			28,000		27,000
Total expenses			297,500		250,300
Pretax income			87,500		57,700
Income taxes (28%)			24,500		16,156
Net income		$	63,000	$	41,544

Problem 25-2A Part 4

4. Determine each project’s net present value using 7% as the discount rate. Assume that cash flows occur at each year-end. (Round your intermediate calculations.)

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