Problem 16-19 Using net present value and internal rate of return to evaluate investment opportunities LO 16-2, 16-3

Dwight Donovan, the president of Rooney 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 $111,000 and for Project B are $49,000. The annual expected cash inflows are $34,262 for Project A and $16,817 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Rooney Enterprises cost of capital is 8 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required

1. Compute the net present value of each project. Which project should be adopted based on the net present value approach?