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 măchine that will enable factory automation; the machine is expected to have a useful life of fouryears and no salvage value. Project B supports a rano oOB and for Project B are $160,000. The operating the current equipment. Initial cash expenditures for Project A are S annual expected cash inflows are $126,000 for Project A and $52,800 for Projęct B. Bọth investménts are expected to provide cash flow benefits for the next four years. Donovan Enterprises' desired rate of return is 8 percent. program that will improve the skills of employees Page 472 Required 2 Compute the net present value of each project. Which project should be adopted based on the net present value approach? Round your computations to two decimal points. D. Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach? Round your rates to six decimal points. Compare the net present value approach with the internal rate of return approach. Which method is better in the given circumstances? Why?
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 măchine that will enable factory automation; the machine is expected to have a useful life of fouryears and no salvage value. Project B supports a rano oOB and for Project B are $160,000. The operating the current equipment. Initial cash expenditures for Project A are S annual expected cash inflows are $126,000 for Project A and $52,800 for Projęct B. Bọth investménts are expected to provide cash flow benefits for the next four years. Donovan Enterprises' desired rate of return is 8 percent. program that will improve the skills of employees Page 472 Required 2 Compute the net present value of each project. Which project should be adopted based on the net present value approach? Round your computations to two decimal points. D. Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach? Round your rates to six decimal points. Compare the net present value approach with the internal rate of return approach. Which method is better in the given circumstances? Why?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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 măchine that will enable factory automation; the machine is expected
to have a useful life of fouryears and no salvage value. Project B supports a rano oOB and for Project B are $160,000. The
operating the current equipment. Initial cash expenditures for Project A are S
annual expected cash inflows are $126,000 for Project A and $52,800 for Projęct B. Bọth investménts are expected to provide
cash flow benefits for the next four years. Donovan Enterprises' desired rate of return is 8 percent.
program that will improve the skills of employees
Page 472
Required
2 Compute the net present value of each project. Which project should be adopted based on the net present value approach? Round your
computations to two decimal points.
D. Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return
approach? Round your rates to six decimal points.
Compare the net present value approach with the internal rate of return approach. Which method is better in the given circumstances?
Why?
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