Question
Dwight Donovan, the president of Benson Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one
Dwight Donovan, the president of Benson 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 three 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 $115,000 and for Project B are $39,000. The annual expected cash inflows are $45,431 for Project A and $16,799 for Project B. Both investments are expected to provide cash flow benefits for the next three years. Benson Enterprises cost of capital is 6 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Required
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Compute the net present value of each project. Which project should be adopted based on the net present value approach?
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Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach?
Complete this question by entering your answers in the tabs below. Required A Required B Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach? Internal Rate of Return Project A Project B Which project should be adopted? Project A Required A Required B
Complete this question by entering your answers in the tabs below. Required A Required B Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach? Internal Rate of Return Project A % Project B % Which project should be adopted? Project A < Required A Required B >
Step by Step Solution
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Step: 1
To solve this well first calculate the Net Present Value NPV for both projects and then the Internal ...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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