The investment committee of Shield Insurance Co. b evaluate two projects., offic

Question

The investment committee of Shield Insurance Co. b evaluate two projects., office expansion and upgrade to computer servers.. The projects have different useful lives, but each requires, an Investment of $1,021,000. The estimated net cash flows from each project B 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 projects useful life is $0. but at the end of the fourth year, the- office expansions residual value would be $335,000. If required. use the minus sign to indicate a negative net present value For each project, compute the net present value. Use the present_value of annuity of $1 table above. Ignore the unequal lives of the projects. If required, round to the nearest dollar. F or each project, compute the net present v a be. Present value of net cash flow total Less amount to be invested Net present value assuming office expansion b adjusted to a four-year life for purposes of analysis. Use the present value of $1 table above.The net present value of the two projects over equal lives indicates that ha higher net present value and would be a superior investment.

Explanation / Answer

office expansion server upgrade PMT 268000 354000 no of period 6 4 rate 12% 12% FV 335000 0 PV $1,271,578.59 $1,075,221.67 initial cost -1021000 -1021000 NPV $250,578.59 $54,221.67 PVI 0.25 0.05 (npv/initial cost)

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