Question

Dwight Donovan, the president of Rooney Enterprises, is considering two investment opportunities. Because of limited resource

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Answer #1

Project A:

Present value of cash inflows = Annual cash inflows x PVIFA8%,4

= $41333 x 3.465106 = $143223

Present value of cash outflows = Initial investment = $107000

Net present value = 143223 - 107000 = 36223

Project B:

Present value of cash inflows = Annual cash inflows x PVIFA8%,4

= $12840  x 3.465106 = 44492

Present value of cash outflows = Initial investment = $39000

Net present value = 44492 - 39000 = $5492

Project A should be accepted.

IRR

Project A = 20%

Project B = 12%

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