The investment committee of Sentry Insurance Co. is evaluating two projects, office expansion and upgrade to computer servers. The projects have different elves, but each requires an investment of $456,000. The estimated net cash flows from each project are as follows: Net Cash Flow Year Office Expansion Server 1 $120,000 $158,000 2 120,000 158,000 3 120,000 158,000 120,000 158,000 120,000 120,000 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 usata e a to, but at the end of the fourth year, the office expansion's residual value would be $150,000 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 0.482 0.572 5 0.621 0.747 0.567 0.402 0.497 6 0.705 0.564 0.335 0.507 0.432 7 0.665 0.513 0.452 0.376 0.279 0.233 8 0.627 0.327 0.404 0.467 0.284 0.424 9 0.194 0.361 0.592 Previous Next > Segrert for Grading 1 0.943 0.909 0.893 0.870 2 0.890 0.826 0.833 0.694 0.797 0.712 0.756 0.840 0.751 0.658 4 0.792 0.636 0.572 0.683 0.621 5 0.747 0.497 6 0.567 0.507 0.705 0.579 0.482 0.402 0.335 0.279 0.233 0.564 0.432 7 0.665 0.513 0.452 0.376 8 0.627 0.467 0.404 9 0.592 0.424 0.361 0.327 0.284 0.247 0.194 10 0.558 0.386 0.322 0.162 6% Present Value of an Annuity of $1 at Compound Interest Year 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 7 5.582 4.868 4.564 4.160 3.605 6.210 8 5.335 4.968 4.487 3.837 4.031 9 6.802 4.772 5.328 5.759 4.192 5.019 10 6.145 5.650 3.326 7.360 Previous Nee El sector Submit Anment for Grading 7 5.582 4.868 4.564 4.160 3.605 8 4.968 5.210 6.802 4.487 3.307 9 5.335 5.759 6.145 5.328 4.031 10 7.360 4.772 5.019 5.650 4.192 Required: If required, use the minus sign to indicate a negative net present value 1. For each project, compute the net present value. Use the present value of an annuity of 51 table above. Ignore the neares of the route the nearest dollar. Office Expansion Server Upgrade Present value of annual net cash flows Less amount to be invested Net present value 2. 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 rest value $1 table above. Office Expansion Server Upgrade Present value of net cash flow total Less amount to be invested Net present value has a higher net present value and would be sener inte 3. The net present value of the two projects over equal lives indicates that the Pos Next Sub for Grade aining: 1:25:04