Alterative captive The investment committee of Sentry Insurance Co is evaluating two projects, office pansion and upgrade to computer servers. The projects have different useful lives, but each requires an investment of $548,000. The estimated net cash flows from each project are as follows: Net Cash Flow Office Expansion Year Server $190,000 190,000 2 $144,000 144.000 144,000 144,000 190.000 190,000 4 5 144.000 144,000 6 3 The committee has selected a rate of 12% for purposes of net present value analysis. It also estimates that the residual value at the end of each project's useful life is $0, but at the end of the fourth year, the office expansion's residual values would be $100,000 Present Value of $1 at Compound Interest Year 69 10% 1206 159 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.432 0.747 0.521 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 0.194 0.558 0.386 0.322 0.24 0.162 4 5 6 7 10 Present Value of an Annuity of $1 at Compound Interest Year 696 1096 129 1596 2094 1 0.943 0.900 0.893 0.870 0.833 2 1.833 1.735 1.690 1.626 1.528 3 2.673 2.487 2.402 2.250 20106 4 3.465 3.170 3.037 2355 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4355 3.785 3.320 2 5.582 4.865 4.554 4.150 3.505 3 6.210 5.235 4.965 4.487 1537 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 Ne Previous Required: If required, use the minus sian to indicate a negative net present value. 1. For each project, compute the net present value. Use the present value of an annuity of $1 table above. Ignore the unequat lives of the projects. If required, round to the nearest dollar. Office Expansion Server Upgrade Present value of annual net cash flows Less amount to be invested Net present value 2. For each project, compute the net present value, assuming that the office expansion is adjusted to a four wear life for purposes of analysis. Use the present value of $1 table above. If required, round to the nearest dollar. Office Expansion Server Upgrade Present value of net cash flow total Less amount to be invested Net present value has a higher net present value and would be a 3. The net present value of the two projects over equal lives indicates that the superior investment