Reference no: EM132751689

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 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 $100,000 and for Project B are $32,000. The annual expected cash inflows are $33,438 for Project A and $9,321 for Project B. Both investments are expected to provide cash flow benefits for the next five years. Rooney Enterprises' desired rate of return is 6 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required

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

Problem 2: Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach?