Alternative Capital Investments

The investment committee of Shield 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 $865,000. The estimated net cash flows from each project are as follows:

Net Cash Flow Year Server Upgrade $319,000 319,000 319,000 319,000 Office Expansion $242,000 242,000 242,000 242,000 242,000 242,000 The committee has selected a rate of 15% 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 value would be $303,000 Present Value of $1 at Compound Interest 10% 0.909 0.826 0.751 0.792 0.683 0.636 0.747 0621 0.567 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 2090 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 Year 6o% 0.943 0.890 0.840 12% 0.893 0.797 0.712 0.705 0.5640.507 0.665 0.513 0.452 0.467 0.592 0.424 0.361 0.386 0.627 0.404 10 0.558 0.322