Question
First United Bank Inc. is evaluating three capital investment projects by using the net present value method. Relevant data related to the projects are summarized
First United Bank Inc. is evaluating three capital investment projects by using the net present value method. Relevant data related to the projects are summarized as follows:
| Branch office Expansion | Computer System Upgrade | ATM Kiosk Expansion |
Amount to be Invested | $420,000 | $350,000 | $520,000 |
Annual net cash flows: |
|
|
|
Year 1 | 200,000 | 190,000 | 275,000 |
Year 2 | 160,000 | 180,000 | 250,000 |
Year 3 | 160,000 | 170,000 | 250,000 |
Present Value of $1 at Compound Interest
Year | 6% | 10% | 12% | 15% | 20% |
1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
2 | 0.890 | 0.826 | 0.797 | 0.756 | 0.694 |
3 | 0.840 | 0.751 | 0.712 | 0.658 | 0.579 |
4 | 0.792 | 0.683 | 0.636 | 0.572 | 0.482 |
5 | 0.747 | 0.621 | 0.567 | 0.497 | 0.402 |
6 | 0.705 | 0.564 | 0.507 | 0.432 | 0.335 |
7 | 0.665 | 0.513 | 0.452 | 0.376 | 0.279 |
8 | 0.627 | 0.467 | 0.404 | 0.327 | 0.233 |
9 | 0.592 | 0.424 | 0.361 | 0.284 | 0.194 |
10 | 0.558 | 0.386 | 0.322 | 0.247 | 0.162 |
Required:
1.Assuming that the desired rate of return is 15%, prepare a net present value analysis for each project. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest dollar.
- Present value of net cash flow total for Branch office expansion, computer system upgrade & ATM Kiosk Expansion
- Less Amount to be invested for branch office expansion, computer system upgrade & ATM kiosk expansion
- Net Present value for branch office expansion, computer system upgrade & ATM kiosk expansion
2. Determine a present value index for each project. If required, round your answers to two decimal places.
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