Problem 10-19A (Algo) Using net present value and Internal rate of return to evaluate Investment opportunitles...

Transcribed Image Text:

Problem 10-19A (Algo) Using net present value and Internal rate of return to evaluate Investment opportunitles LO 10-2, 10-3 Dwight Donovan, the president of Stuart 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 three 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 $103,000 and for Project B are $47.000. The annual expected cash inflows are $40,691 for Project A and $18,899 for Project B. Both investments are expected to provide cash flow benefits for the next three years. Stuart Enterprises' desired rate of return is 6 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Compute the net present value of each project. Which project should be adopted based on the net present value approach? b. Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach? Complete this question by entering your answers in the tabs below. Required A Required B 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.) Net Present Value Project A Project B Which project should be adopted? Project A < Required A Required B Complete this question by entering your answers in the tabs below. Required A 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? Project A Project B Which project should be adopted? Internal Rate of Return 96 %6 < Required A Required B > Problem 10-19A (Algo) Using net present value and Internal rate of return to evaluate Investment opportunitles LO 10-2, 10-3 Dwight Donovan, the president of Stuart 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 three 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 $103,000 and for Project B are $47.000. The annual expected cash inflows are $40,691 for Project A and $18,899 for Project B. Both investments are expected to provide cash flow benefits for the next three years. Stuart Enterprises' desired rate of return is 6 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Compute the net present value of each project. Which project should be adopted based on the net present value approach? b. Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach? Complete this question by entering your answers in the tabs below. Required A Required B 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.) Net Present Value Project A Project B Which project should be adopted? Project A < Required A Required B Complete this question by entering your answers in the tabs below. Required A 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? Project A Project B Which project should be adopted? Internal Rate of Return 96 %6 < Required A Required B >