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 six-year life and no salvage value. Project Z requires a $320,000 investment for new machinery with a five-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. 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 (38%) 33,250 21,926 Net income $ 54,250 $ 35,774 Compute each project’s accounting rate of return.
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 six-year life and no salvage value. Project Z requires a $320,000 investment for new machinery with a five-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. 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 (38%) 33,250 21,926 Net income $ 54,250 $ 35,774 Compute each project’s accounting rate of return.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 six-year life and no salvage value. Project Z requires a $320,000 investment for new machinery with a five-year life and no salvage value. The two projects yield the following predicted annual results. The company uses straight-line
| Project Y | Project Z | |||||||
| Sales | $ | 385,000 | $ | 308,000 | ||||
| Expenses | ||||||||
| Direct materials | 53,900 | 38,500 | ||||||
| Direct labor | 77,000 | 46,200 | ||||||
| 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 (38%) | 33,250 | 21,926 | ||||||
| Net income | $ | 54,250 | $ | 35,774 | ||||
Compute each project’s accounting
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