Question

Dwight Donovan, the president of Baird 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 three 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 $105,000 and for Project B are $48,000. The annual expected cash inflows are $49,846 for Project A and $21,372 for Project B. Both investments are expected to provide cash flow benefits for the next three years. Baird Enterprises' cost of capital is 6 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Compute 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 of return approach? Answer is complete Sut not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Compute the net present value of each project. Which project should be adopted based on the net present value approach? (Round your intermediate calculations and final answers to 2 decimal places.) Net Present Value 104.951.35 X 9.127 57 x Project A Project B Which project should be adopted? Project A

Answer 1

Year	PV factor @6%
1	0.943396226
2	0.889996440
3	0.839619283
Total	2.673011949

If the Present value factor is rounded to 5 Decimal Places.

		Project A	Project B
	Annual cash inflows	$         49,846.00	$        21,372.00
Multiply:	Present value factor of annuity $1 for 6%, 3 Years	2.67301	2.67301
	Present value of cash inflow	$       133,238.86	$        57,127.57
Less:	Initial cash expenditures	$       105,000.00	$        48,000.00
	Net Present Value	$         28,238.86	$          9,127.57
	Project A should be Adopted because of Higher Net present value better projects.		Project A

If the Present value factor is not rounded to 5 Decimal Places.

		Project A	Project B
	Annual cash inflows	$         49,846.00	$        21,372.00
Multiply:	Present value factor of annuity $1 for 6%, 3 Years	2.673011949	2.673011949
	Present value of cash inflow	$       133,238.95	$        57,127.61
Less:	Initial cash expenditures	$       105,000.00	$        48,000.00
	Net Present Value	$         28,238.95	$          9,127.61
	Project A should be Adopted because of Higher Net present value better projects.		Project A