Dwight Donovan, the president of Stuart 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 $40,000. The annual expected cash inflows are $31,793 for Project A and $14,295 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Stuart Enterprises’ desired rate of return is 8 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?
Dwight Donovan, the president of Stuart 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 $40,000. The annual expected
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?
-
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
I couldn't do this because I couldn't figure out how to get the PV factor. How did you get 3.3121? How is this entered into a calculator?
by Bartleby Expert
