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Problem 16-19 Using net present value and internal rate of return to evaluate investment opportunities...

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Accounting

Problem 16-19 Using 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.

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c.Compare the net present value approach with the internal rate of return approach. Which method is better in the given circumstances? Why?

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