Review the scenario and complete the activity below as directed.

Competency Assessment Title:Net Present and Internal Rate of Return

Assignment Directions

Review the scenario and complete the activity below. 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 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 $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 four years. Donovan Enterprises’ desired rate of return is 8 percent. 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.
• 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.

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 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. TextbookEdmonds, T., Edmonds, C., Edmonds, M., Edmonds, J., & Olds, P. (2023). Fundamental managerial accounting concepts (10th ed.). McGraw-Hill Education.Kubasek, N., Browne, M. N., Herron, D., Dhooge, L., & Barkacs, L. (2023). Dynamic business law (6th ed.). McGraw-Hill Education.ToolsMcGraw-Hill Connect

Competency Assessment Rubric
Assignment/Performance
Criteria
Mastery
100%
1. Computations
(weight 30%)
Showed formulas, formulas were
completely correct, showed all
calculation details, and
calculations were completely
correct, resulting in completely
accurate interpretations.
2. Net Present Analysis
(weight 8%)
Thoroughly analyzed results of
the net present value calculation;
showed the significance of
results from a creative and
innovative perspective; examples
thoroughly supported the
analysis.
3. Net Present Value
Approach Decision
(weight 8%)
Determined which project should
be adopted based on the new
present value approach and
provided a thorough, creative,
and innovative rationale to
support decision.
4. Internal Rate of Return
Analysis
(weight 8%)
Thoroughly analyzed the results
of the internal rate of return
calculation; showed the
significance of results from a
creative and innovative
perspective; examples
thoroughly supported analysis.
Assignment/Performance
Criteria
Mastery
100%
5. Internal Rate of Return
Approach Decision
(weight 8%)
Determined which project should
be adopted based on the internal
rate of return approach and
provided a thorough, creative,
and innovative rationale to
support decision.
6. Preferred Method
Decision
(weight 18%)
Determined the preferred method
for the given circumstances and
provided thorough, creative, and
innovative reasons and details to
support decision.
7. Best Investment
Opportunity
Recommendation
(weight 20%)
Thoroughly synthesized the
results of analyses and
computations from a creative and
innovative perspective to
determine the best investment
opportunity to recommend to the
president of Donovan
Enterprises.