Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Senario: Dwight donovan, the president of donovan enterprises is considering two investment options. Becasue of limited resources he will only be able to invest in

Senario:

Dwight donovan, the president of donovan enterprises is considering two investment options. Becasue of limited resources he will only be able to invest in one of them. Project A is to purchase a machine that will enable factort automation; the machine is expected to have a useful life of 4 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 anual 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 4 years. Donovan Enterprisis desired rate of return is 8 percent.

Questions:

1: Compute the net present value of each project. Which project should be adopted based on the net present value? Round to 2 decimal points.

2: Compute the approximate internal rate of return on each project. Which should be adopted based on the internal rate of return? Round to 6 decial points.

3: Compare the net present value approach to the internal rate of return approach. Which method is better and why?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Survey Of Accounting

Authors: Carl S. Warren, Amanda Farmer

9th Edition

0357132599, 978-0357132593

More Books

Students also viewed these Accounting questions

Question

2. Information that comes most readily to mind (availability).

Answered: 1 week ago

Question

3. An initial value (anchoring).

Answered: 1 week ago