Problem 16-19A (Algo) Using net present value and internal rate of return to evaluate investment opportunities LO 16-2, 16-3 Dwight Donovan, the president of Thornton 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 five 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 $119,000 and for Project B are $38,000. The annual expected cash inflows are $31,392 for Project A and $10,542 for Project B. Both investments are expected to provide cash flow benefits for the next five years. Thornton Enterprises' desired rate of return is 4 percent. (PV of $1 and PVA of $1 ) (Use appropriate factor(s) from the tables provided.) Required a. Compute the net present value of each project. Which project should be adopted based on the net present value approach? b. 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. Compute the net present value of each project. Which project should be adopted based on the net present value approach? (Round your final answers to 2 decimal places.) Problem 16-19A (Algo) Using net present value and internal rate of return to evaluate investment opportunities LO 16-2, 16-3 Dwight Donovan, the president of Thornton 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 five 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 $119,000 and for Project B are $38,000. The annual expected cash inflows are $31,392 for Project A and $10,542 for Project B. Both investments are expected to provide cash flow benefits for the next five years. Thornton Enterprises' desired rate of return is 4 percent. (PV of $1 and PVA of $1 ) (Use appropriate factor(s) from the tables provided.) Required a. Compute the net present value of each project. Which project should be adopted based on the net present value approach? b. 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. Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach? Exercise 1612 A (Algo) Determining the payback period LO 16-4 Franklin Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $14,280,000; it will enable the company to increase its annual cash inflow by $6,800,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $39,360,000; it will enable the company to increase annual cash flow by $8,200,000 per year. This plane has an eight-year useful life and a zero salvage value. Required a. Determine the payback period for each investment alternative and identify the alternative Franklin should accept if the decision is based on the payback approach. (Round your answers to 1 decimal place.) Exercise 16-14A (Algo) Determining the unadjusted rate of return LO 16-4 Fanning Painting Company is considering whether to purchase a new spray paint machine that costs $2,800. The machine is expected to save labor, increasing net income by $420 per year. The effective life of the machine is 15 years according to the manufacturer's estimate. Required a. Determine the unadjusted rate of return based on the average cost of the investment. (Enter your answer as a whole percentage (e.g. 0.55 should be entered as 55).)
