Question
Net Present Value Method, Present Value Index, and Analysis First United Bank Inc. is evaluating three capital investment projects using the net present value method.
Net Present Value Method, Present Value Index, and Analysis
First United Bank Inc. is evaluating three capital investment projects 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 | $449,295 | $328,489 | $154,926 | ||||
Annual net cash flows: | |||||||
Year 1 | 269,000 | 183,000 | 113,000 | ||||
Year 2 | 250,000 | 165,000 | 78,000 | ||||
Year 3 | 229,000 | 146,000 | 57,000 |
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 20%, prepare a net present value analysis for each proposal. 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.
Branch Office Expansion | Computer System Upgrade | ATM Kiosk Expansion | |
Present value of net cash flow total | $fill in the blank 1 | $fill in the blank 2 | $fill in the blank 3 |
Amount to be invested | $fill in the blank 4 | $fill in the blank 5 | $fill in the blank 6 |
Net present value | $fill in the blank 7 | $fill in the blank 8 | $fill in the blank 9 |
2. Determine a present value index for each proposal. If required, round your answers to two decimal places.
Present Value Index | |
Branch Office Expansion | fill in the blank 10 |
Computer System Upgrade | fill in the blank 11 |
Install Internet Bill-Pay | fill in the blank 12 |
3. Which proposal offers the largest amount of present value per dollar of investment?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started