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t Donvan, the president of Munoz enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only 1 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 $114, 000 and for project, B is $43,000. The annual expected cash inflows are $44,037 for project A and $13,565 for project B. Both investments are expected to provide cash flow benefits for the next four years. Munoz Enterprises' desired rate is 8 percent. A. Commute the net present value of each project. B. Commute the approximate internal rate of each proje

t Donvan, the president of Munoz enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only 1 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 $114, 000 and for project, B is $43,000. The annual expected cash inflows are $44,037 for project A and $13,565 for project B. Both investments are expected to provide cash flow benefits for the next four years. Munoz Enterprises' desired rate is 8 percent. A. Commute the net present value of each project. B. Commute the approximate internal rate of each proje

Essentials Of Investments
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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Dwight Donvan, the president of Munoz enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only 1 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 $114, 000 and for project, B is $43,000. The annual expected cash inflows are $44,037 for project A and $13,565 for project B. Both investments are expected to provide cash flow benefits for the next four years. Munoz Enterprises' desired rate is 8 percent.

A. Commute the net present value of each project.

B. Commute the approximate internal rate of each project.

TABLE 2 PRESENT VALUE OF AN ANNUITY OF $1 10% 12% 0.892857 14% 0.877193 4% 5% 6% 7% 8% 9% 16% 20% 0.917431 1.759111 1 0.961538 0.952381 0.943396 0.934579 0.925926 0.909091 0.862069 0.833333 1.886095 2.775091 3.629895 4.451822 1.605232 2.245890 2.798181 3.274294 3.684736 4.038565 4.343591 1.859410 1.833393 1.808018 1.783265 1.735537 1.690051 1.646661 1.527778 3 2.723248 2.673012 2.624316 2.577097 2.531295 2.486852 2.401831 2.321632 2.106481 3.465106 3.169865 2.913712 3.433081 3.888668 4 3.545951 3.387211 3.312127 3.239720 3.037349 2.588735 3.790787 4.355261 4.329477 4.212364 4.100197 3.992710 3.889651 3.604776 2.990612 6 5.242137 5.075692 4.917324 4.766540 4.622880 4.485919 4.111407 3.325510 5.032953 5.534819 4.288305 4.638864 7 6.002055 5.786373 5.582381 5.389289 5.206370 4.868419 4.563757 6.463213 7.107822 7.721735 8.306414 8.863252 6.209794 6.801692 7.360087 7.886875 8.383844 8.852683 3.604592 3.837160 4.030967 4.192472 4.327060 8. 6.732745 5.971299 5.746639 5.334926 4.967640 4.946372 5.216116 4.606544 4.833227 5.028644 7.435332 6.515232 6.246888 5.995247 6.417658 5.759024 6.144567 6.495061 5.328250 7.023582 7.498674 10 6.710081 5.650223 8.110896 8.760477 11 7.138964 6.805191 5.937699 5.452733 12 9.385074 7.942686 7.536078 7.160725 6.813692 6.194374 5.660292 5.197107 4.439217 7.903776 8.244237 5.842362 6.002072 6.142168 4.532681 4.610567 13 9.985648 9.393573 8.357651 8.745468 9.107914 9.446649 7.486904 7.103356 6.423548 10.563123 11.118387 5.342334 5.467529 5.575456 14 9.898641 10.379658 10.837770 9.294984 9.712249 7.786150 7.366687 6.628168 15 8.559479 8.060688 7.606080 7.823709 6.810864 4.675473 8.851369 9.121638 6.265060 6.372859 6.467420 6.550369 16 11.652296 10.105895 8.312558 6.973986 5.668497 4.729561 17 12.165669 11.274066 10.477260 9.763223 8.543631 8.021553 7.119630 5.748704 4.774634 12.659297 13.133939 10.827603 11.158116 11.469921 10.059087 10.335595 9.371887 9.603599 9.818147 8.755625 8.905115 9.128546 8.201412 8.364920 8.513564 18 11.689587 7.249670 5.817848 4.812195 7.365777 4.843496 4.869580 19 12.085321 5.877455 20 13.590326 12.462210 10.594014 7.469444 6.623131 5.928841
Transcribed Image Text:TABLE 2 PRESENT VALUE OF AN ANNUITY OF $1 10% 12% 0.892857 14% 0.877193 4% 5% 6% 7% 8% 9% 16% 20% 0.917431 1.759111 1 0.961538 0.952381 0.943396 0.934579 0.925926 0.909091 0.862069 0.833333 1.886095 2.775091 3.629895 4.451822 1.605232 2.245890 2.798181 3.274294 3.684736 4.038565 4.343591 1.859410 1.833393 1.808018 1.783265 1.735537 1.690051 1.646661 1.527778 3 2.723248 2.673012 2.624316 2.577097 2.531295 2.486852 2.401831 2.321632 2.106481 3.465106 3.169865 2.913712 3.433081 3.888668 4 3.545951 3.387211 3.312127 3.239720 3.037349 2.588735 3.790787 4.355261 4.329477 4.212364 4.100197 3.992710 3.889651 3.604776 2.990612 6 5.242137 5.075692 4.917324 4.766540 4.622880 4.485919 4.111407 3.325510 5.032953 5.534819 4.288305 4.638864 7 6.002055 5.786373 5.582381 5.389289 5.206370 4.868419 4.563757 6.463213 7.107822 7.721735 8.306414 8.863252 6.209794 6.801692 7.360087 7.886875 8.383844 8.852683 3.604592 3.837160 4.030967 4.192472 4.327060 8. 6.732745 5.971299 5.746639 5.334926 4.967640 4.946372 5.216116 4.606544 4.833227 5.028644 7.435332 6.515232 6.246888 5.995247 6.417658 5.759024 6.144567 6.495061 5.328250 7.023582 7.498674 10 6.710081 5.650223 8.110896 8.760477 11 7.138964 6.805191 5.937699 5.452733 12 9.385074 7.942686 7.536078 7.160725 6.813692 6.194374 5.660292 5.197107 4.439217 7.903776 8.244237 5.842362 6.002072 6.142168 4.532681 4.610567 13 9.985648 9.393573 8.357651 8.745468 9.107914 9.446649 7.486904 7.103356 6.423548 10.563123 11.118387 5.342334 5.467529 5.575456 14 9.898641 10.379658 10.837770 9.294984 9.712249 7.786150 7.366687 6.628168 15 8.559479 8.060688 7.606080 7.823709 6.810864 4.675473 8.851369 9.121638 6.265060 6.372859 6.467420 6.550369 16 11.652296 10.105895 8.312558 6.973986 5.668497 4.729561 17 12.165669 11.274066 10.477260 9.763223 8.543631 8.021553 7.119630 5.748704 4.774634 12.659297 13.133939 10.827603 11.158116 11.469921 10.059087 10.335595 9.371887 9.603599 9.818147 8.755625 8.905115 9.128546 8.201412 8.364920 8.513564 18 11.689587 7.249670 5.817848 4.812195 7.365777 4.843496 4.869580 19 12.085321 5.877455 20 13.590326 12.462210 10.594014 7.469444 6.623131 5.928841
TABLE 1 PRESENT VALUE OF $1 n 4% 5% 6% 7% 8% 9% 10% 12% 14% 16% 20% 1 0.961538 0.952381 0.943396 0.934579 0.925926 0.917431 0.909091 0.892857 0.877193 0.862069 0.833333 0.924556 3 0.888996 0.863838 0.839619 0.816298 0.793832 0.772183 0.751315 0.711780 0.674972 0.640658 0.578704 0.907029 0.889996 0.873439 0.857339 0.841680 0.826446 0.797194 0.769468 0.743163 0.694444 4 0.854804 0.822702 0.792094 0.762895 0.735030 0.708425 0.683013 0.635518 0.592080 0.552291 0.482253 0.821927 0.783526 0.747258 0.712986 0.680583 0.649931 0.620921 0.567427 0.519369 0.476113 0.401878 6. 0.790315 0.746215 0.704961 0.666342 0.630170 0.596267 0.564474 0.506631 0.455587 0.410442 0.334898 7 0.759918 0.710681 0.665057 0.622750 0.583490 0.547034 0.513158 0.452349 0.399637 0.353830 0.279082 8 0.730690 0.676839 0.627412 0.582009 0.540269 0.501866 0.466507 0.403883 0.350559 0.305025 0.232568 0.702587 0.644609 0.591898 0.543934 0.500249 0.460428 0.424098 0.360610 0.307508 0.262953 0.193807 10 0.675564 0.613913 0.558395 0.508349 0.463193 0.422411 0.385543 0.321973 0.269744 0.226684 0.161506 11 0.649581 0.584679 0.526788 0.475093 0.428883 0.387533 0.350494 0.287476 0.236617 0.195417 0.134588 12 0.624597 0.556837 0.496969 0.444012 0.397114 0.355535 0.318631 0.256675 0.207559 0.168463 0.112157 13 0.600574 0.530321 0.468839 0.414964 0.367698 0.326179 0.289664 0.229174 0.182069 0.145227 0.093464 14 0.577475 0.505068 0.442301 0.387817 0.340461 0.299246 0.263331 0.204620 0.159710 0.125195 0.077887 15 0.555265 0.481017 0.417265 0.362446 0.315242 0.274538 0.239392 0.182696 0.140096 0.107927 0.064905 16 0.533908 0.458112 0.393646 0.338735 0.291890 0.251870 0.217629 0.163122 0.122892 0.093041 0.054088 17 0.513373 0.436297 0.371364 0.316574 0.270269 0.231073 0.197845 0.145644 0.107800 0.080207 0.045073 18 0.493628 0.415521 0.350344 0.295864 0.250249 0.211994 0.179859 0.130040 0.094561 0.069144 0.037561 19 0.474642 0.395734 0.330513 0.276508 0.231712 0.194490 0.163508 0.116107 0.082948 0.059607 0.031301 20 0.456387 0.376889 0.311805 0.258419 0.214548 0.178431 0.148644 0.103667 0.072762 0.051385 0.026084
Transcribed Image Text:TABLE 1 PRESENT VALUE OF $1 n 4% 5% 6% 7% 8% 9% 10% 12% 14% 16% 20% 1 0.961538 0.952381 0.943396 0.934579 0.925926 0.917431 0.909091 0.892857 0.877193 0.862069 0.833333 0.924556 3 0.888996 0.863838 0.839619 0.816298 0.793832 0.772183 0.751315 0.711780 0.674972 0.640658 0.578704 0.907029 0.889996 0.873439 0.857339 0.841680 0.826446 0.797194 0.769468 0.743163 0.694444 4 0.854804 0.822702 0.792094 0.762895 0.735030 0.708425 0.683013 0.635518 0.592080 0.552291 0.482253 0.821927 0.783526 0.747258 0.712986 0.680583 0.649931 0.620921 0.567427 0.519369 0.476113 0.401878 6. 0.790315 0.746215 0.704961 0.666342 0.630170 0.596267 0.564474 0.506631 0.455587 0.410442 0.334898 7 0.759918 0.710681 0.665057 0.622750 0.583490 0.547034 0.513158 0.452349 0.399637 0.353830 0.279082 8 0.730690 0.676839 0.627412 0.582009 0.540269 0.501866 0.466507 0.403883 0.350559 0.305025 0.232568 0.702587 0.644609 0.591898 0.543934 0.500249 0.460428 0.424098 0.360610 0.307508 0.262953 0.193807 10 0.675564 0.613913 0.558395 0.508349 0.463193 0.422411 0.385543 0.321973 0.269744 0.226684 0.161506 11 0.649581 0.584679 0.526788 0.475093 0.428883 0.387533 0.350494 0.287476 0.236617 0.195417 0.134588 12 0.624597 0.556837 0.496969 0.444012 0.397114 0.355535 0.318631 0.256675 0.207559 0.168463 0.112157 13 0.600574 0.530321 0.468839 0.414964 0.367698 0.326179 0.289664 0.229174 0.182069 0.145227 0.093464 14 0.577475 0.505068 0.442301 0.387817 0.340461 0.299246 0.263331 0.204620 0.159710 0.125195 0.077887 15 0.555265 0.481017 0.417265 0.362446 0.315242 0.274538 0.239392 0.182696 0.140096 0.107927 0.064905 16 0.533908 0.458112 0.393646 0.338735 0.291890 0.251870 0.217629 0.163122 0.122892 0.093041 0.054088 17 0.513373 0.436297 0.371364 0.316574 0.270269 0.231073 0.197845 0.145644 0.107800 0.080207 0.045073 18 0.493628 0.415521 0.350344 0.295864 0.250249 0.211994 0.179859 0.130040 0.094561 0.069144 0.037561 19 0.474642 0.395734 0.330513 0.276508 0.231712 0.194490 0.163508 0.116107 0.082948 0.059607 0.031301 20 0.456387 0.376889 0.311805 0.258419 0.214548 0.178431 0.148644 0.103667 0.072762 0.051385 0.026084
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