Answer:
Most Company
                                                           Project Y     Project Z
1. Annual expected net cash flows   $140,500  $151,347
2. Payback period                                2.5 years   2.3 years
3. Accounting rate of return                 15.3%         9.9%
4. Net present value, using 9%        $105,220   $33,059
Explanation:
a) Data and Calculations:
                                                           Project Y     Project Z
Initial investment costs                    $350,000    $350,000
Useful life of project                         4 years        3 years
Salvage value                                    $0                $0
Annual depreciation                          $87,500     $116,667
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 (40%)                            35,600      23,120
Net income                                       $53,400   $34,680
Accounting rate of return                   15.3%         9.9%
= Net income/Initial investment cost * 100
Annual Cash inflows:
Net income                                       $53,400   $34,680
Annual depreciation                           87,500    116,667
Annual expected net cash flows   $140,500  $151,347
PV annuity factor at 9% for 4 years    3.240       2.531              
PV of annual cash inflows            $455,220 $383,059
Net Present Value = (Initial investment - PV of annual cash flows)
NPV =                                             $105,220   $33,059
Payback period = Initial investment cost/Annual cash inflow