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Darya [45]
2 years ago
9

Dwight Donovan, the president of Finch Enterprises, is considering two investment opportunities. Because of limited resources, h

e 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 $103,000 and for Project B are $41,000. The annual expected cash inflows are $34,441 for Project A and $12,522 for Project B. Both investments are expected to provide cash flow benefits for the next five years. Finch Enterprises’ desired rate of return is 8 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Mathematics
1 answer:
Sever21 [200]2 years ago
7 0

1. The computation of the net present value of each project is as follows:

                                     Project A           Project B

NPV                               $36,523            $9,000

2. Based on the net present value approach, <u>Project A</u> should be adopted, instead of Project B.

<h3>What is the net present value?</h3>

The net present value is the difference between the costs and the annual cash inflows discounted to their present values.

<h3>Data and Calculations:</h3>

                                      Project A           Project B

Initial costs                     $103,000          $41,000

Annual cash inflows         $34,441          $12,522

Project live                       5 years            5 years

Rate of return                    8%                    8%

Annuity factor                   3.993             3.993

PV of cash inflows       $139,523          $50,000

NPV                               $36,523            $9,000

<h3>Question Completion:</h3>

1. Compute the net present value of each project.

2. Which project should be adopted based on the net present value approach?

Thus, based on the net present value approach, <u>Project A</u> should be adopted.

Learn more about the net present value at brainly.com/question/13228231

#SPJ1

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