Comp 1 Assessment PLEASE
ENSURE ALL CALCULATIONS ARE ACCURATE. USE EXCEL AND PROVIDE FORMULAS AND
DETAIL.
This scenario can also
be found in the “Problems – Series A” section 10-19A of Ch. 10, “Planning for
Capital Investments” of Fundamental Managerial Accounting Concepts.
Dwight Donovan, the
president 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 to
purchase a machine that will enable factory automation; the machine is expected
to have a useful life of 4 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 $400,000 and for
Project B are $160,000. The annual expected cash inflows are $126,000 for
Project A and $52,800 for Project B.
Both investments are
expected to provide cash flow benefits for the next 4 years. Donovan
Enterprises’ desired rate of return is 8%. Your task as Senior Accountant is to use your knowledge
of net present value and internal rate of return to identify the preferred
method and best investment opportunity for the company and present your results
to Dwight Donovan.
Use Excel®—showing all work and formulas—to
compute 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 net
present value approach with the internal rate of return approach that you
calculated.
Complete the following in
your 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.
