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The investment committee of Sentry Insurance Co. is evaluating two projects, office expansion and upgrado to computer servers. The projects have different useful lives, but
The investment committee of Sentry Insurance Co. is evaluating two projects, office expansion and upgrado 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: 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. Present Value of an Annuitv of $1 at Compound Interest 1. For each project, compute the net present value. Use the present value of an annuity of s1 table above. Ignore the unequal lives of the projects. If requlred, round to the nearest dollar. 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 12 table above. 3. The net present value of the two projects over equal lives indicates that the has a higher net gensent valuie and woudd he a simerinf invettrenent
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