Dwight Donovan, the president of Finch 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 operating the current equipment. Initial cash expenditures for Project A are $380,000 and for Project B are $158,000. The annual expected cash inflows are $133,000 for Project A and $56,800 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Finch Enterprises' desired rate of return is 9 percent. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided.
Dwight Donovan, the president of Finch 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 operating the current equipment. Initial cash expenditures for Project A are $380,000 and for Project B are $158,000. The annual expected cash inflows are $133,000 for Project A and $56,800 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Finch Enterprises' desired rate of return is 9 percent. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...
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