Question

Dwight Donovan the president of Solomon Enterprises is considering two investment opportunities Because of limited resources, he will be able to live in only one of the Project Aito che machine that will enable factory automation the machines expected to have a le of three years a go Project Ruots a training program that will prove the skills of employees operating the current equipment C o nditure for Project Aare $114,000 and for Project are 545.000. The annual expected cash inflows are 554 119 for Proct A and $19 814 for Project Both investments are expected to provide cash flow benefits for the next three years. Solomon Laterprises cost of capital is a percent ( $1 and VAS Use appropriate factors) from the tables provided.) Required a. Computer 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 ofretum approach Complete this question by entering your answers in the tabs below Required A Required Compute the net present value of each project which project should be adopted based on the net present value approach? Round your intermediate chat ons and rearw o 2 Decimal places) Net Present Value Projects Which triect should need Rewired ) Prey 1013 !!! Next > search

Can someone please explain and show me fhe work and answers I am trying to fifure this out for review for my final

Answer 1

Date:11 Page No.:_ Page ① Present Value a Net Project A i = $114000 Ft Initial cash at year 0 outflow Today 27 Annual cash inflows = $54119 for 3 years factor (8% 3 yeon) ! Present value = $54119 Present value annuity = $ 54119 X 2.5770969872) $ 139470 37 Net Present value = (NPV) Present value of Present value of - Inflows outflows NPV = 139410 - 114000 - $25470

Page ③ Date:_IIPage no: Project B - Initial cash outflow = $46000 - 2 Annual cash inflows = $19814 for 3 yeon Present value = = $19814 x Present value annuity factor (8% 3 years). $19814 x 2.57709698721 & $51063 3) Net Present value = 51063 - 46000 = $5063 I Decision :- the Since Project NPV of I should be Project A is higher selected

Date: Page no Page ① Internal rate of retum (IRR) IRR is that discounting rate at which present value of inflow a present value of outflow Project A (life 3 years) 54119 Y PUAF = 114000 PVAF = 114000 = 2.1064690714 (3years) Sulig using factor table. 2.1064690774= PUAF(20% 3) IRR = 20% Project B (life 3 years) 19814 x PVAC = 46000 PUA = 46000 = 2.32159079438 (3 years) Iggiu using factor table -2.32159 079438 - PUAR (14% 3) IRR = 14% Project I should be selected due to higher IRR.