**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. **

**Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $350,000 $280,000 **

**Expenses **

**Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,000 35,000 **

**Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 42,000 **

**Overhead including depreciation . . . . . . . . . . . . . . 126,000 126,000 **

**Selling and administrative expenses . . . . . . . . . . . 25,000 25,000 **

**Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,000 228,000 **

**Pretax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 52,000 **

**Income taxes (30%) . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000 15,600 **

**Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,000 $ 36,400**

** **

**Required **

**1. Compute each project’s annual expected net cash flows. (Round the 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 the net present value to the nearest dollar.) Analysis Component **

**5. Identify the project you would recommend to management and explain your choice.**