Problem # 16-19 on page 596-597 using Excel. Formulas are required.
a. NPV of A: $8,664.00
b. Rate of return of B: 12%
Problem 16-19Using net present value and internal rate of return to evaluate investment opportunities
Pedro Spier, the president of Spier 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 operating the current equipment. Initial cash expenditures for Project A are $200,000 and for Project B are $80,000. The annual expected cash inflows are $63,000 for Project A and $26,400 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Spier Enterprises’ cost of capital is 8 percent.
a.Compute the net present value of each project. Which project should be adopted based on the net present value approach? Round your computations to two decimal points.
b.Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach? Round your rates to six decimal points.
c.Compare the net present value approach with the internal rate of return approach. Which method is better in the given circumstances? Why?
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more