Most Company has an opportunity to invest in one of two new projects. Project Y requires a $300,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $300,000 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. Project Y Project Z
Sales $360,000 $288,000
Expenses Direct materials 50,400 36,000
Direct labor 72,000 43,200
Overhead including depreciation 129,600 129,600
Selling and administrative expenses 26,000 26,000
Total expenses 278,000 234,800
Pretax income 82,000 53,200
Income taxes (26%) 21,320 13,832
Net income $60,680 $39,368

Required:
a. Compute each projectâs annual expected net cash flows.
b. Determine each projectâs payback period.
c. Compute each projectâs accounting rate of return.