Dwight Donovan, the president of Vernon Enterprises, is considering two investment opportunities. Because of limited will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the ma expected to have a useful life of four years and no salvage value. Project B supports a training program that will improv employees operating the current equipment. Initial cash expenditures for Project A are $108,000 and for Project B are annual expected cash inflows are $41,719 for Project A and $11,523 for Project B. Both investments are expected to pro benefits for the next four years. Vernon Enterprises' desired rate of return is 8 percent. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided.
Dwight Donovan, the president of Vernon Enterprises, is considering two investment opportunities. Because of limited will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the ma expected to have a useful life of four years and no salvage value. Project B supports a training program that will improv employees operating the current equipment. Initial cash expenditures for Project A are $108,000 and for Project B are annual expected cash inflows are $41,719 for Project A and $11,523 for Project B. Both investments are expected to pro benefits for the next four years. Vernon Enterprises' desired rate of return is 8 percent. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided.
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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Transcribed Image Text:Dwight Donovan, the president of Vernon 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 $108,000 and for Project B are $35,000. The
annual expected cash inflows are $41,719 for Project A and $11,523 for Project B. Both investments are expected to provide cash flow
benefits for the next four years. Vernon Enterprises' desired rate of return is 8 percent. (PV of $1 and PVA of $1)
Note: Use appropriate factor(s) from the tables provided.
Required
a. Compute the net present value of each project. Which project should be adopted based on the net present value approach?
b. Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return
approach?
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