Demonstrate the net present value of each project

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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

Reference no: EM132550624

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