Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 Amount to be invested 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 Net present value 6.145 0.893 1.690 2.402 Net present value 3.037 3.605 4.111 4.564 4.968 Present value of annual net cash flows 5.328 5.650 0.870 Total present value of net cash flow Amount to be invested 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 0.833 1.528 Required: 1. For each project, compute the net present value. Use the present value of an annuity of $1 table above. Ignor the unequal lives of the projects. If required, round to the nearest dollar. Office Expansion 1,967,250 X 490,000 $ 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 2. For each project, compute the net present value, assuming that the office expansion is adjusted to a 4-year life for purposes of analysis. Use the present value of $1 table above. Office Expansion Servers Upgrade 490,000 $ 490,000 Servers Upgrade $ 490,000
Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 Amount to be invested 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 Net present value 6.145 0.893 1.690 2.402 Net present value 3.037 3.605 4.111 4.564 4.968 Present value of annual net cash flows 5.328 5.650 0.870 Total present value of net cash flow Amount to be invested 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 0.833 1.528 Required: 1. For each project, compute the net present value. Use the present value of an annuity of $1 table above. Ignor the unequal lives of the projects. If required, round to the nearest dollar. Office Expansion 1,967,250 X 490,000 $ 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 2. For each project, compute the net present value, assuming that the office expansion is adjusted to a 4-year life for purposes of analysis. Use the present value of $1 table above. Office Expansion Servers Upgrade 490,000 $ 490,000 Servers Upgrade $ 490,000
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text: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:
Year
1
1
2
3
4
2
Year
5
6
3
7
8
9
10
4
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.
5
6
0.943
0.890
0.840
Present Value of $1 at Compound Interest
6%
10%
0.792
0.747
0.705
0.665
0.627
Net Cash
Flows
Office
Expansion
$125,000
125,000
125,000
125,000
125,000
125,000
0.592
0.558
0.909
0.826
0.751
0.683
0.621
0.564
0.513
Net Cash
Flows
Servers
0.467
$165,000
165,000
165,000
165,000
0.424
0.386
12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
0.322
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
20%
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
Transcribed Image Text:Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
2
3
4
5
6
7
8
9
10
0.943
1.833
2.673
3.465
4.212
4.917
5.582
6.210
6.802
7.360
Amount to be invested
Net present value
0.909
1.736
2.487
3.170
Amount to be invested
3.791
Net present value
4.355
4.868
5.335
5.759
6.145
0.893
1.690
2.402
3.037
3.605
Present value of annual net cash flows
4.111
4.564
4.968
5.328
5.650
Total present value of net cash flow
0.870
1.626
2.283
2.855
3.353
3.785
4.160
4.487
4.772
5.019
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
0.833
$
1.528
$
2.106
2.589
2.991
3.326
3.605
3.837
4.031
4.192
1,967,250 X
2. For each project, compute the net present value, assuming that the office expansion is adjusted to a 4-year
life for purposes of analysis. Use the present value of $1 table above.
Office Expansion
490,000
Servers Upgrade
490,000
$
490,000
Servers Upgrade
$
$
490,000
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education