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Compute the net present value of each project

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Question - Dwight Donovan, the president of Campbell 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 $114,000 and for Project B are $38,000. The annual expected cash inflows are $29,309 for Project A and $11,069 for Project B. Both investments are expected to provide cash flow benefits for the next five years. Campbell Enterprises' desired rate of return is 8 percent.

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

Reference no: EM133041117

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