#3Dwight Donovan, the president of Benson Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of four years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $103,000 and for Project B are $34,000. The annual expected cash inflows are $35,350 for Project A and $12,151 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Benson Enterprises’ desired rate of return is 6 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)RequiredCompute the net present value of each project. Which project should be adopted based on the net present value approach?Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach? **Instructions:**Complete this question by entering your answers in the tabs below.**Tab: Required A**- (No content provided)**Tab: Required B**- Compute the net present value of each project. Which project should be adopted based on the net present value approach? (Round your final answers to 2 decimal places.)| | Net Present Value ||-------------|-------------------|| Project A | || Project B | |- Which project should be adopted?**Buttons:**- [< Required A]- [Required B >] These buttons likely allow navigation between different parts of the problem or activity. In summary, the task involves calculating and comparing the net present values of two projects, Project A and Project B, and deciding which one to adopt based on those values. Complete this question by entering your answers in the tabs below.Tabs:- Required A- Required B (selected)**Question:**Compute the approximate internal rate of return (IRR) of each project. Which one should be adopted based on the internal rate of return approach?**Table:**| | Internal Rate of Return ||------------------------|-------------------------|| Project A | | % || Project B | | % || Which project should be adopted? | | |**Navigation Button:**- [← Required A]- [Required B →] (disabled) ---**Explanation:**This section requires the computation of the internal rate of return for two projects, A and B. The IRR is a metric used in capital budgeting to estimate the profitability of potential investments. After determining the IRR for each project, decide which project to adopt based on the higher rate, assuming no other constraints. Use the tab navigation to access different sections of the task.

In the field of financial analysis, a statistic known as the internal rate of return (IRR) is used…

Answered: Dwight Donovan, the president of Benson…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Dwight Donovan, the president of Benson Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of four years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $103,000 and for Project B are $34,000. The annual expected cash inflows are $35,350 for Project A and $12,151 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Benson Enterprises’ desired rate of return is 6 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required

Compute the net present value of each project. Which project should be adopted based on the net present value approach?
Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach?

**Instructions:**

Complete this question by entering your answers in the tabs below.

**Tab: Required A**
- (No content provided)

**Tab: Required B**
- Compute the net present value of each project. Which project should be adopted based on the net present value approach? (Round your final answers to 2 decimal places.)

| | Net Present Value |
|-------------|-------------------|
| Project A | |
| Project B | |

- Which project should be adopted?

**Buttons:**
- [< Required A]
- [Required B >]

These buttons likely allow navigation between different parts of the problem or activity.

In summary, the task involves calculating and comparing the net present values of two projects, Project A and Project B, and deciding which one to adopt based on those values.

Complete this question by entering your answers in the tabs below.

Tabs:
- Required A
- Required B (selected)

**Question:**
Compute the approximate internal rate of return (IRR) of each project. Which one should be adopted based on the internal rate of return approach?

**Table:**

| | Internal Rate of Return |
|------------------------|-------------------------|
| Project A | | % |
| Project B | | % |
| Which project should be adopted? | | |

**Navigation Button:**
- [← Required A]
- [Required B →] (disabled)

---

**Explanation:**
This section requires the computation of the internal rate of return for two projects, A and B. The IRR is a metric used in capital budgeting to estimate the profitability of potential investments. After determining the IRR for each project, decide which project to adopt based on the higher rate, assuming no other constraints. Use the tab navigation to access different sections of the task.

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