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 $$490,000.$ The estimated net cash flows from each project are as follows:

$\backslash$table$[[,$Net Cash Flows$],[$Year$,$Office Expansion,Servers$],[1,$$$135,000,$$$170,000],[2,135,000,170,000],[3,135,000,170,000],[4,135,000,170,000],[5,135,000,],[6,135,000,]]$

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 $$0,$ but at the end of the fourth year, the office expansion's residual value would be $$180,000.$

Show your calculations for parts a and $b.$

a$.$ For each project, compute the net present value. Use the present value of an annuity of $$1$ table appearing in this chapter $($Exhibit $5).($Ignore the unequal lives of the projects.$)$

b$.$ For each project, compute the net present value, assuming that the office expansion is adjusted to a four$-$year life for purposes of analysis. Use the present value of $$1$ table appearing in this chapter $($Exhibit $2).$

c$.$ Prepare a report to the investment committee, providing your advice on the relative merits of the two projects.