Most Company has an opportunity to invest in one of two new
projects. Project Y requires a $340,000 investment for new
machinery with a sixyear life and no salvage value. Project Z
requires a $340,000 investment for new machinery with a fiveyear
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 

$ 
375,000 


$ 
300,000 

Expenses 








Direct materials 


52,500 



37,500 

Direct labor 


75,000 



45,000 

Overhead including depreciation 


135,000 



135,000 

Selling and administrative expenses 


27,000 



27,000 

Total expenses 


289,500 



244,500 

Pretax income 


85,500 



55,500 

Income taxes (26%) 


22,230 



14,430 

Net income 

$ 
63,270 


$ 
41,070 


3. Compute each project’s accounting rate of
return.


Accounting Rate of Return 

Choose Numerator: 
/ 
Choose Denominator: 
= 
Accounting Rate of Return 


/ 

= 
Accounting rate of return 
Project Y 




0 

Project Z 




0 
