Thursday, March 22, 2018
Chapter 24 Analysis and computation of payback period, accounting rate of return, net present value
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $350,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $350,000 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. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
1. Compute each project’s annual expected net cash flows.
2. Determine each project’s payback period.
3. Compute each project’s accounting rate of return.
Annual average investment= (cost+ salvage)/2
4. Determine each project’s net present value using 8% as the discount rate. Assume that cash flows occur at each year-end. (Round your intermediate calculations.)
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