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: Net Cash Flows Year Office Expansion Servers 1 $125,000 $165,000 2 125,000 165,000 3 125,000 165,000 4 125,000 165,000 5 125,000 6 125,000 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 projects useful life is $0; but at the end of the fourth year, the office expansions residual value would be $180,000.

Instructions 1. For each project, compute the net present value. Use the present value of an annuity of $1 table appearing in this chapter (3.605)

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 present value of $1 table appearing in this chapter (.712)