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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?

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