Question

Dwight Donovan, the president of Zachary 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 $109,000 and for Project B are $35,000. The annual expected cash inflows are $28,023 for Project A and $9,709 for Project B. Both investments are expected to provide cash flow benefits for the next five years. Zachary Enterprises’ desired rate of return is 8 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required

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

Required A

Compute the net present value of each project. Which project should be adopted based on the net present value approach? (Round your final answers to 2 decimal places.)

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

	Net Present Value
Project A
Project B
What Project Should be Adopted?

Required B

Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach?

	Internal Rate of Return
Project A		%
Project B		%
Which Project should be adopted

Answer 1