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Analyze the results of the net present value calculations and the significance of these results, supported with examples.

Determine which project should be adopted based on the net present value approach and provide rationale for your decision.

Analyze the results of the internal rate of return calculation and the significance of these results, supported with examples.

Determine which project should be adopted based on the internal rate of return approach and provide rationale for your decision.

Determine the preferred method in the given circumstances and provide reasoning and details to support the method selected

Synthesize results of analyses and computations to determine the best investment opportunity to recommend to the president of Donovan Enterprises.

Used this for the numbers:

Using net present value and internal rate of return to evaluate investment opportunities Dwight Donovan the president of Donovan 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 $400,000 and for Project B are $160,000. The annual expected cash inflows are $126,000 for Project A and $52,800 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Donovan Enterprises desired rate of return is 8 percent.

Read the scenario and complete the activity below.

Net present value computation Project A Project B Year Cashflows DCF @ 8% PV DCF @ 13% PV Year Cashflows DCF @ 8% PV DCF @ 13% PV a b c=axb d e=axd a b c=axb d e=axd (400,000) 1.0000 $ (400,000.00) 1.0000 $ (400,000.00) O O (160,000) 1.0000 $ (160,000.00) 1.0000 $ (160,000.00) 126,000 0.9259 $ 116,666.67 0.8850 $ 111,504.42 52,800 0.9259 $ 48,888.89 0.8850 $ 46,725.66 126,000 0.8573 $ 108,024.69 0.7831 $ 98,676.48 W N H W N H 52,800 0.8573 $ 45,267.49 0.7831 $ 41,350.14 126,000 0.7938 $ 100,022.86 0.6931 $ 87,324.32 52,800 0.7938 $ 41,914.34 0.6931 $ 36,593.05 126,000 0.7350 $ 92,613.76 0.6133 $ 77,278.16 4 52,800 0.7350 $ 38,809.58 0.6133 $ 32,383.23 Net present value S 17,327.98 $ (25,216.61) Net present value 14,880.30 $ (2,947.91) Comment - Based on the NPV computations project A is recommended as it gives a higher NPV of $ 17,327.98 compared to $14,880.30 from porject B. IRR (N1 x r2) - (N2 x r1) x 100 IRR = (N1 xr2) - (N2 x r1) x 100 N1 - N2 N1 - N2 ($17,327.98 x 0.13) - (-$25,216.61 x 0.08) x 100 S ($14,880.30 x 0.13) - ($-2,947.91 x 0.08) x 100 $ 17,327.98 - ($25,216.61) $14,880.30 - ($2,947.91) Project A = 10.036449% Project B = 12.173245%