CHECK FIGURES

a. NPV of A: $8,664.00

b. Rate of return of B: 12%

Problem 16-19Using net present value and internal rate of return to evaluate investment opportunities

Pedro Spier, the president of Spier 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 $200,000 and for Project B are $80,000. The annual expected cash inflows are $63,000 for Project A and $26,400 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Spier Enterprises' cost of capital is 8 percent.

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Required

a.Compute the net present value of each project. Which project should be adopted based on the net present value approach? Round your computations to two decimal points.

b.Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach? Round your rates to six decimal points.

c.Compare the net present value approach with the internal rate of return approach. Which method is better in the given circumstances? Why?

Essentials of Accounting Week 7 Template Problem 16-19 a. Project A Cash Inflows Annual cash inflows Cash outflows Cost of investment Net present value Project B Cash Inflows Annual cash inflows Cash outflows Cost of investment Net present value Amount x Amount x Which project would you choose based on NPV ? b. Project A: Cost of Investment divided by Annual Cash Flows Present value table factor = Approximate Interest Rate find this in Table 2 Project B: Cost of Investment divided by Annual Cash Flows Present value table factor = Approximate Interest Rate find this in Table 2 Which project would you choose based on IRR ? c.Compare the net present value approach with the internal rate of retur is better in the given circumstances? Why? c. Table Value Present Value = Table Value d this in Table 2 Present Value = d this in Table 2 h with the internal rate of return approach. Which method y