Dwight Donovan, the president of Donovan Enterprises, is considering two investment opportunities. Because of limited resources, hewill be able to invest in only one of them. Project A is to purchase a măchine that will enáble factory automation: the machine iş expectedto have a useful life of four years and no salvage value. Project B supports a training program that will improve the skills of employeesoperating the current equipment Intial cash expenditures for Projec A are $400 000 and for Project B are S160.000. Theannual expected cash inflows are S126,000 for Projęct A and $52,800 for Project B. Both investments are expected to providePape 472RequiredCompute the net present value of cach project. Which project should be adopted based on the net present value approach? Round yourcomputations to two decimal points..Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of returnCompare the net present value approach with the internal rate of return approach. Which method is better in the given circumstances?Why?

Answered: Image /qna-images/answer/37a83652-2d56-4f99-b3f5-ae899f77dc2f.jpg

Answered: Dwight Donovan, the president of…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Arnold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements by body builders. The project requires use of an existing warehouse, which the firm acquired three years ago for $1 million and which it currently rents out for $116,000. Rental rates are not expected to change going forward. In addition to using the warehouse, the project requires an upfront investment into machines and other equipment of $1.3 million. This investment can be fully depreciated straight-line over the next 10 years for tax purposes. However, Arnold Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for $581,000. Finally, the project requires an initial investment into net working capital equal to 10% of predicted first-year sales. Subsequently, net working capital is 10% of the predicted sales over the following year. Sales of protein bars are expected to be $4.5 million in the first year and to stay constant for eight…
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I do not understand the PV and cannot find the appropriate table for this?
Arnold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements by body builders. The project requires use of an existing warehouse, which the firm acquired three years ago for $3 million and which it currently rents out for $137,000. Rental rates are not expected to change going forward. In addition to using the warehouse, the project requires an upfront investment into machines and other equipment of $1.4 million. This investment can be fully depreciated straight-line over the next 10 years for tax purposes. However, Arnold Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for $440,000. Finally, the project requires an initial investment into net working capital equal to 10% of predicted first-year sales. Subsequently, net working capital is 10% of the predicted sales over the following year. Sales of protein bars are expected to be $4.7 million in the first year and to stay constant for eight…
K88.
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