The investment committee of Shield 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 $485,000. The estimated net cash flows from each project are as follows:

	Net Cash Flow
Year	Office Expansion				Server Upgrade
1	$127,000				$168,000
2	127,000				168,000
3	127,000				168,000
4	127,000				168,000
5	127,000
6	127,000

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 $159,000.

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.9434	0.9091	0.8929	0.8696	0.8333
2	0.8900	0.8265	0.7972	0.7561	0.6944
3	0.8396	0.7513	0.7118	0.6575	0.5787
4	0.7921	0.6830	0.6355	0.5718	0.4823
5	0.7473	0.6209	0.5674	0.4972	0.4019
6	0.7050	0.5645	0.5066	0.4323	0.3349
7	0.6651	0.5132	0.4523	0.3759	0.2791
8	0.6274	0.4665	0.4039	0.3269	0.2326
9	0.5919	0.4241	0.3606	0.2843	0.1938
10	0.5584	0.3855	0.3220	0.2472	0.1615

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.9434	0.9091	0.8929	0.8696	0.8333
2	1.8334	1.7355	1.6901	1.6257	1.5278
3	2.6730	2.4868	2.4018	2.2832	2.1065
4	3.4651	3.1699	3.0374	2.8550	2.5887
5	4.2124	3.7908	3.6048	3.3522	2.9906
6	4.9173	4.3553	4.1114	3.7845	3.3255
7	5.5824	4.8684	4.5638	4.1604	3.6046
8	6.2098	5.3349	4.9676	4.4873	3.8372
9	6.8017	5.7590	5.3283	4.7716	4.0301
10	7.3601	6.1446	5.6502	5.0188	4.1923

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 The sum of the present values of a series of equal cash flows to be received at fixed intervals.present value of an annuity of $1 table above. Ignore the unequal lives of the projects. If required, round to 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 present value of $1 table above.

Note: Round final answers to the nearest whole dollar.

	Office Expansion	Server Upgrade
Present value of net cash flow total	$	$
Less amount to be invested	$	$
Net present value	$	$

3. The net present value of the two projects over equal lives indicates that the office expansion or server upgrade has a higher net present value and would be a superior investment.