Pedro Spier, the president of Spier Enterprises, is considering two investment opportunities. Because of limited resources,...

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Pedro Spier, the president of Spier Enterprises, is consideringtwo investment opportunities. Because of limited resources, he willbe able to invest in only one of them. Project A is to purchase amachine that will enable factory automation; the machine isexpected to have a useful life of four years and no salvage value.Project B supports a training program that will improve the skillsof employees operating the current equipment. Initial cashexpenditures for Project A are $106,000 and for Project B are$40,000. The annual expected cash inflows are $40,947 for Project Aand $13,169 for Project B. Both investments are expected to providecash flow benefits for the next four years. Spier Enterprises’ costof capital is 8 percent. (PV of $1 and PVA of $1) (Use appropriatefactor(s) from the tables provided.) Required a-1. Compute the netpresent value of each project. (Round your intermediatecalculations and final answers to 2 decimal places.) a-2. Whichproject should be adopted based on the net present value approach?Project B Project A b-1. Compute the approximate internal rate ofreturn of each project. b-2. Which one should be adopted based onthe internal rate of return approach? Project B Project A

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Answer 1.

Calculation of NPV of Project
Particulars	Year	8% Factor	Project A		Project B
Particulars	Year	8% Factor	Amount	Present value	Amount	Present value
		C	D	C X D	E	C X E
Cash Inflow
Net Cash Inflow - Cost savings	1-4	3.31213	40,947	135,622	13,169	43,617

A. Total Cash Inflow - PV				135,622		43,617

Cash Outflow
Cost of Project	0	1.00000	106,000	106,000	40,000	40,000

B. Total Cash Outflow - PV				106,000		40,000

NPV (A - B)				29,622		3,617

Project A should be selected


Answer 2.

	Year	Project A	Project B
Intial Investment	0	(106,000)	(40,000)
Expcted Net Cash inflow	1	40,947	13,169
	2	40,947	13,169
	3	40,947	13,169
	4	40,947	13,169

Internal Rate of Return		20.00%	12.00%

Project A should be selected

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Pedro Spier, the president of Spier Enterprises, is consideringtwo investment opportunities. Because of limited resources, he willbe able to invest in only one of them. Project A is to purchase amachine that will enable factory automation; the machine isexpected to have a useful life of four years and no salvage value.Project B supports a training program that will improve the skillsof employees operating the current equipment. Initial cashexpenditures for Project A are $106,000 and for Project B are$40,000. The annual expected cash inflows are $40,947 for Project Aand $13,169 for Project B. Both investments are expected to providecash flow benefits for the next four years. Spier Enterprises’ costof capital is 8 percent. (PV of $1 and PVA of $1) (Use appropriatefactor(s) from the tables provided.) Required a-1. Compute the netpresent value of each project. (Round your intermediatecalculations and final answers to 2 decimal places.) a-2. Whichproject should be adopted based on the net present value approach?Project B Project A b-1. Compute the approximate internal rate ofreturn of each project. b-2. Which one should be adopted based onthe internal rate of return approach? Project B Project A