Alternative Capital Investments The investment committee of Sentry Insurance Co. is evaluating two projects, office expansion and upgrade to computer servers. The projects have different useful lives, but each requires an investment of $1,140,000. The estimated net cash flows from each project are as follows Net Cash Flow Year Office Expansion $299,000 $395.000 299,000 395,000 299,000 395,000 299,000 395,000 299,000 299,000 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 so, but at the end of the fourth year, the office expansion's residual value would be $374,000 Present Value of si at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 0.890 0.825 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 43 0.792 0.705 0,665 0.627 0.592 0.558 0.564 0.513 0.467 0.424 0.386 0.507 0.452 0.004 0.432 0.376 0.327 0.284 0.335 0.279 0.233 0.194 0.162 0.322 0.247 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 1.833 1.736 1.690 1.626 1.528 2.673 2.487 2.402 2.283 2.106 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.352 2.991 4.917 4.355 3.784 3.326 5.582 4.868 4.564 4.160 3.605 6.210 5.335 4.958 3.837 6.802 5.750 5.328 4.772 4.031 7.360 5.145 5.650 5.019 4.192 Required: If required, use the minussion 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 Tonore the uncual lives of the projects. If required 9 6 .602 5.759 5.32 4.772 4.031 10 7.360 6.145 5.50 5.019 4.192 Required: If required, use the minus sign to indicate a negative net present value of 51 table above. Ignore the unequal lives of the projects. If required 1. For each project, compute the net present value. Use the present value of an any round to the nearest dollar Ofe wpusi Present value of annual net cash flows Less amount to be invested Net present value s e the present 2. For each project compute the net present value, assuming that the office expansion is adjusted to a four year life for purposes of analy value of 51 table above. Office Expansion Server Upgrade Present value of net cash flow tota Les amount to be invested Net present value 3. The netoresent Value of the two projects over equal lives indicates that the has a higher not present value and would be superior