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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Tulsa Company is considering investing in new bottling equipment and has two options: Option A has a lower initial cost but would require a significant expenditure to rebuild the machine after four years; Option B has higher maintenance costs, but also has a higher salvage value at the end of its useful life. Tulsa’s cost of capital is 11 percent. The following estimates of the cash flows were developed by Tulsa’s controller:       Option A Option B Initial investment $ 320,000   $ 454,000   Annual cash inflows   150,000     160,000   Annual cash outflows   70,000     75,000   Costs to rebuild   120,000     0   Salvage value   0     24,000   Estimated useful life   8 years   8 years     Required: Calculate NPV. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your "Present Values" to the nearest whole…

A company is intending to invest in a capital budgeting project to manufacture a medical testing device and has projected the following sales: Year 1                       Year 2                   Year 3                    Year 4                      Year 5 50,000                   66,400                   81,200                   68,500                   54,500 The installed cost of the new assets will be $18,500,000 which will be depreciated using the 7-year MACRS schedule. The assets will have a salvage value of $3,700,000. Initial NWC requirements are $1,500,000 and additional working capital needs are estimated to be 15% of the projected sales increases for the following year. Total fixed costs are $2,000,000 per year. The medical device has a selling price of $300 per unit and variable production costs are $175. The firm has a marginal tax rate of 35% and a required rate of return of 18%. Analyze this project and give your recommendation as to whether they should invest in it or…

Follow the format shown in Exhibit 12B.1 and Exhibit 12B.2 as you complete the requirement below. Woodard Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines. The outlay required is $700,000. The NC equipment will last five years with no expected salvage value. The expected after-tax cash flows associated with the project follow: Year Cash Revenues Cash Expenses 1 2 3 4 5 $1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 $1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 Required: Compute the investment's Net Present Value, assuming a required rate of return of 8 percent. Round present value calculations and your final answer to the nearest dollar. NPV = $ X

Blur Corp. is looking at investing in a production facility that will require an initial investment of $500,000. The facility will have a three-year useful life, and it will not have any salvage value at the end of the project’s life. If demand is strong, the facility will be able to generate annual cash flows of $250,000, but if demand turns out to be weak, the facility will generate annual cash flows of only $120,000. Blur Corp. thinks that there is a 50% chance that demand will be strong and a 50% chance that demand will be weak. If the company uses a project cost of capital of 13%, what will be the expected net present value (NPV) of this project? -$66,346   -$63,187   -$34,753   -$44,231     Blur Corp. could spend $510,000 to build the facility. Spending the additional $10,000 on the facility will allow the company to switch the products they produce in the facility after the first year of operations if demand turns out to be weak in year 1. If the…

ealthy Food Ltd is considering to invest in one of the two following projects to buy new machinery. Each option will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 7%. The cash flows of the projects are provided below.     Machinery 1 Machinery 2 Cost $396,000 $415,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5   123,000 194,000 205,000 215,000 228,000   196, 000 204,000 212,000 217,000 233,000   Required: Identify which option of machinery should the company accept based on the simple payback period method if the firm maintains a policy that every investment project should recover the initial investment within 2 years.

Perit Industries has $100,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:     Project A Project B Cost of equipment required $ 100,000 $ 0 Working capital investment required $ 0 $ 100,000 Annual cash inflows $ 21,000 $ 16,000 Salvage value of equipment in six years $ 8,000 $ 0 Life of the project   6 years   6 years     The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries’ discount rate is 14%.   Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables.   Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment…

BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided below. Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash outflows Net present value Machine A $78,200 8 years Profitability index 0 $19,800 $5,130 Machine A Machine B $182,000 8 years Click here to view the factor table. Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) 0 $39,600 $10,180 Machine B

Perit Industries has $115,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:     Project A Project B Cost of equipment required $ 115,000 $ 0 Working capital investment required $ 0 $ 115,000 Annual cash inflows $ 21,000 $ 69,000 Salvage value of equipment in six years $ 8,700 $ 0 Life of the project   6 years   6 years     The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries’ discount rate is 15%.   Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.   Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment…