Reference no: EM132550638

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 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 opertating the current equipment. Initial cash expenditures for Project A are $400,000 and for Project B are $160,000. The annual expected cash inflows are $126,000 for Project A and $52,800 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Donovan Enterprises' desired rate of return is 8 percent.

Question 1: Compute the net present value of each project.Round your computations to 2 decimal points.

Question 2:  Compute the approximate internal rate of return for each project. Round your rates to 6 decimal points

Question 3: Analyze the results of the net present value calculations and the significance of these results, supported with examples.

Question 4: Determine which project should be adopted based on the net present value approach and provide rationale for your decision.

Question 5: Analyze the results of the internal rate of return calculation and the significance of these results, supported with examples.

Question 6:  Determine which project should be adopted based on the internal rate of return approach and provide rationale for your decision.

Question 7:  Determine the preferred method in the given circumstances and provide reasoning and details to support the method selected.

Question 8:  Synthesize results of analyses and computations to determine the best investment opportunity to recommend to the president of Donovan Enterprises.