Alternative Capital Investments The investment committee of Shield Insurance Co.
ID: 2425892 • Letter: A
Question
Alternative Capital Investments
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 $1,239,000. The estimated net cash flows from each project are as follows:
The committee has selected a rate of 15% for purposes of net present value analysis. It also estimates that the residual value at the end of each project's
The committee has selected a rate of 15% 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 $433,000.
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 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.
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 _________________ has a higher net present value and would be a superior investment.
Office Expansion
Server Upgrade
Present value of annual net cash flows
$ _________________
$ _________________
Less amount to be invested
$ _________________
$ _________________
Net present value
$ _________________
$ _________________
Explanation / Answer
Note : Missing information Cash inflows are not provided. please provide it to get it answered
1) Net present value
Particulars Calculation Office Expansion Calculation Server upgradeRelated Questions
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