INVESTMENT OPPORTUNITIES

Comp 1 Assessment Instructions

PLEASEENSURE ALL CALCULATIONS ARE ACCURATE. USE EXCEL AND PROVIDE FORMULAS ANDDETAIL.

This scenario can alsobe found in the Problems Series A section 10-19A of Ch. 10, Planning forCapital Investments of Fundamental Managerial Accounting Concepts.

Dwight Donovan, thepresident of Donovan Enterprises, is considering 2 investment opportunities.Because of limited resources, he will be able to invest in only 1 of them.

Project A is topurchase a machine that will enable factory automation; the machine is expectedto have a useful life of 4 years and no salvage value. 

Project B supports atraining program that will improve the skills of employees operating thecurrent equipment. Initial cash expenditures for Project A are $400,000 and forProject B are $160,000. The annual expected cash inflows are $126,000 forProject A and $52,800 for Project B. 

Both investments areexpected to provide cash flow benefits for the next 4 years. DonovanEnterprises desired rate of return is 8%. Your task as Senior Accountant is to use your knowledgeof net present value and internal rate of return to identify the preferredmethod and best investment opportunity for the company and present your resultsto Dwight Donovan.

Use Excelshowing all work and formulastocompute the following:

  • The net present value of each project. Round your computations to 2 decimal points.
  • The approximate internal rate of return for each project. Round your rates to 6 decimal points.

Create an 8- to 10-slide presentation showing the comparison of the netpresent value approach with the internal rate of return approach that youcalculated. 

Complete the following inyour presentation: 

  • Analyze the results of the net present value calculations and the significance of these results, supported with examples. 
  • Determine which project should be adopted based on the net present value approach and provide rationale for your decision.
  • Analyze the results of the internal rate of return calculation and the significance of these results, supported with examples. 
  • Determine which project should be adopted based on the internal rate of return approach and provide rationale for your decision.
  • Determine the preferred method in the given circumstances and provide reasoning and details to support the method selected.
  • Synthesize results of analyses and computations to determine the best investment opportunity to recommend to the president of Donovan Enterprises and provide rationale for your recommendation.
  • Include detailed speaker notes.

 

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