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Donovan Enterprises Competency Assessment 1 Jenifer Kephart December 4th, 2023

Net Present Values: Project A NPV: Year 1: $126,000 / (1 + 0.08)^1 - $400,000 = $117,592.59 Year 2: $126,000 / (1 + 0.08)^2 - $400,000 = $108,864.20 Year 3: $126,000 / (1 + 0.08)^3 - $400,000 = $100,692.35 Year 4: $126,000 / (1 + 0.08)^4 - $400,000 = $93,036.53 Project B NPV: Year 1: $52,800 / (1 + 0.08)^1 - $160,000 = $44,444.44 Year 2: $52,800 / (1 + 0.08)^2 - $160,000 = $38,888.89 Year 3: $52,800 / (1 + 0.08)^3 - $160,000 = $33,888.89 Year 4: $52,800 / (1 + 0.08)^4 - $160,000 = $29,444.44

Internal Rate of Return: Project A IRR: IRR (A) = IRR(range of cash flows for Project A) ≈ 10.61% Project B IRR: IRR (B) = IRR(range of cash flows for Project B) ≈ 11.95%

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NPV Approach Analysis: Project A NPV = $419,186.67 - Project B NPV = $146,666.67

IRR Approach Analysis: - Project A IRR ≈ 10.61% - Project B IRR ≈ 11.95%

The optimal choice hinges on the financial objectives of the company. IF DONOVAN ENTERPRISES SEEKS TO OPTIMIZE THE OVERALL VALUE DERIVED FROM THE INVESTMENT, SELECTING PROJECT A IS ADVISABLE DUE TO ITS SUPERIOR NPV. IF DONOVAN ENTERPRISES PLACES A PREMIUM ON ATTAINING A HIGHER PERCENTAGE RETURN ON THEIR INVESTMENT, OPTING FOR PROJECT B IS RECOMMENDED AS IT BOASTS A HIGHER IRR.

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Project A vs. Project B

The NPV and IRR approaches offer distinct viewpoints in assessing investments:

In conclusion: • Project A has a significantly higher Net Present Value (NPV) of approximately $419,186.67 over a four-year period. This suggests that Project A is expected to generate more total value for Donovan Enterprises when considering the time value of money, and therefore my suggestion would be Project A.

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