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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 fiveyear life and no salvage value. Project Z
requires a $320,000 investment for new machinery with a fouryear
life and no salvage value. The two projects yield the following
predicted annual results. The company uses straightline
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  $  390,000  $  312,000  
Expenses  
Direct materials  54,600  39,000  
Direct labor  78,000  46,800  
Overhead including depreciation  140,400  140,400  
Selling and administrative expenses  28,000  28,000  
Total expenses  301,000  254,200  
Pretax income  89,000  57,800  
Income taxes (36%)  32,040  20,808  
Net income  $  56,960  $  36,992  
4. Determine each project’s net present value using 7% as the discount rate. Assume that cash flows occur at each yearend. (Round your intermediate calculations.)

Project Y  
Chart values are based on:  
n =  5  
i =  7%  
Select Chart  Amount  x  PV Factor  =  Present Value 
Present value of an annuity of 1  120960  x  4.1002  =  495960 
Present value of cash inflows  495960  
Present value of cash outflows  320000  
Net present value  175960  
Project Z  
Chart values are based on:  
n =  4  
i =  7%  
Select Chart  Amount  x  PV Factor  =  Present Value 
Present value of an annuity of 1  116992  x  3.3872  =  396275 
Present value of cash inflows  396275  
Present value of cash outflows  320000  
Net present value  76275  
Workings:  
Project Y  Project Z  
Net income  56960  36992  
Add: Depreciation  64000  80000  
Annual cash flows  120960  116992 
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