Reference no: EM132550608
Dwight Donovan, the president of Donovan 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 opertating the current equipment. Initial cash expenditures for Project A are $400,000 and for Project B are $160,000. The annual 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 four years. Donovan Enterprises' desired rate of return is 8 percent.
Question 1: Compute the net present value of each project.Round your computations to 2 decimal points.
Question 2: Compute the approximate internal rate of return for each project. Round your rates to 6 decimal points
Question 3: Analyze the results of the net present value calculations and the significance of these results, supported with examples.
Question 4: Determine which project should be adopted based on the net present value approach and provide rationale for your decision.
Question 5: Analyze the results of the internal rate of return calculation and the significance of these results, supported with examples.
Question 6: Determine which project should be adopted based on the internal rate of return approach and provide rationale for your decision.
Question 7: Determine the preferred method in the given circumstances and provide reasoning and details to support the method selected.
Question 8: Synthesize results of analyses and computations to determine the best investment opportunity to recommend to the president of Donovan Enterprises.