Instant download to solution. Once the payment is made, the solution file link will be auto-mailed to your specified E-mail id. Check your inbox as well as spam folder. You can download the solution file by clicking that link.
Sophia Sweeny, the president of Sweeny Enterprises, is considering two investment opportunites. Because of limited resources, she 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 our 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 300,000 and for Project B are 120,000. The annual expected cash inflows are 94641 for project A and 39,507 for project B. both investments are expected to provide cash flow benefits for the next four years. Sweeny Enterprise’s 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?
b) Compute the approximate internal rate of return of each project. Which one should be adopted based on the internal rate of return approach?
c) Compare the net present value approach with the internal rate of return approach. Which method is better in the given circumstances? Why?