# ACCT301 Week 7 Homework – Problem # 16-19 on page 596 – Perfect Solution – Instant Delivery

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Problem Statement
Problem # 16-19 on page 596 using Excel. Formulas are required.

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 in flows 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.

Required
a. Compute the net present value ofeach 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 ofeach 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?

CHECK FIGURES
a.NPV of A:\$8,664.00
b. Rate of return of B: 12%

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