Planning For Capital Investments

Dwight Donovan, the president of Stuart 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 $119,000 and for Project B are $40,000. The annual expected cash inflows are $45,968 for Project A and $13,728 for Project B. Both investments are expected to provide cash flow benefits for the next four years.