Project A Project B Sales $250,000 $200,000 Expenses Direct materials 35,000 25,000 Direct labor.. 50,000 30,000 Overhead Including depreciation 90,000 90,000 Selling and administrative expenses. 18,000 18,000 Total expenses 193,000 163,000 Pretax Income. 57,000 37,000 Income taxes (30%) 17,100 11,100 Net Income $ 39,900 25,900 Required 1. Compute each project's annual expected net cash flows. (Round 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.) 4. Determine each project's net present value using 8% as the discount rate. For part 4 only, assume that cash flows occur at each year-end. (Round net present values to the nearest dollar.) Analysis Component 5. Identify the project you would recommend to management and explain your choice.

Project A Project B Sales $250,000 $200,000 Expenses Direct materials 35,000 25,000 Direct labor.. 50,000 30,000 Overhead Including depreciation 90,000 90,000 Selling and administrative expenses. 18,000 18,000 Total expenses 193,000 163,000 Pretax Income. 57,000 37,000 Income taxes (30%) 17,100 11,100 Net Income $ 39,900 25,900 Required 1. Compute each project's annual expected net cash flows. (Round 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.) 4. Determine each project's net present value using 8% as the discount rate. For part 4 only, assume that cash flows occur at each year-end. (Round net present values to the nearest dollar.) Analysis Component 5. Identify the project you would recommend to management and explain your choice.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter2: Financial Statements, Cash Flow, And Taxes

Section: Chapter Questions

Problem 14SP

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