Alternative Capital Investments, business & finance homework help

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Chapter 26 eBook Calculator 1. PR.26-1.A Present Value of an Annuity of $1 at Compound Interest 2. PR.26-2A Year 10% 12% 15% 20% 3. PR.26-3A 6% 0.9434 1 0.9091 0.8929 0.8696 0.8333 4. PR.26-4A 2 1.6901 1.6257 1.5278 1.8334 2.6730 1.7355 2.4868 5. PR.26-5.A 3 2.4018 2.2832 2.1065 4 3.4651 3.1699 3.0374 2.8550 2.5887 2.9906 5 4.2124 3.7908 3.6048 3.3522 6 4.9173 4.3553 4.1114 3.7845 3.3255 7 7 5.5824 4.8684 4.5638 4.1604 3.6046 8 5.3349 4.9676 4.4873 3.8372 6.2098 6.8017 9 5.7590 5.3283 4.7716 4.0301 10 7.3601 6.1446 5.6502 5.0188 4.1923 Required: 1. For each project, compute the net present value. Use the 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 $ 490,000 $ 490,000 Net present value $ X X 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. Office Expansion Server Upgrade Present value of net cash flow total х S Less amount to be invested S 490,000 $ 490,000 Net present value X 3. The net present value of the two projects over equal lives indicates that the server upgrade has a higher net present value and would be a superior investment. Feedback Check My Work 1. For each project, multiply the annual net cash flow by the factor (6 periods at 12% for office expansion; 4 periods at 12% for server upgrade). Subtract the amount to be invested. 2. For each proposal, multiply the factor by the net cash flow, including the residual value for office expansion. Subtract the amount to be invested from the total present value of the net cash flow. 3. Compare over equal lives. Check My Work Previous Progress: 5/5 items Assignment Score: 87.69% All work saved. Email Instructor Save and Exit Submit Assignment for Grading Chapter 26 eBook Calculator 1. PR.26-1.A 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: 2. PR.26-2A Net Cash Flows 3. PR.26-3A Year 4. PR.26-4A 2 5. PR.26-5.A 3 Office Expansion Servers 1 $125,000 $165,000 125,000 165,000 125,000 165,000 4 125,000 165,000 5 125,000 125,000 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 project's useful life is $0; but at the end of the fourth year, the office expansion's residual value would be $180,000. 6 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 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 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 Check My Work Previous Progress: 5/5 items Assignment Score: 87.69% All work saved. Email Instructor Save and Exit Submit Assignment for Grading
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Explanation & Answer

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Question No: 1

Present Value of Annual Net Cash Flow
Less: Amount to be Invested
Net Present Value

Office
Expansion
513,926
490000
23,926

Server
Upgrade
501,163
490000
11,163

Question No: 2

Present Value of Annual Net Cash Flow
Less: Amount to be Invested
Net Present Value

Office
Expansion
494,062
490000
4,062
Question No: 3

Server upgrade

Server
Upgrade
501,16...


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