United Bankshores, Inc. wishes to evaluate three capital investment proposals by

Question

United Bankshores, Inc. wishes to evaluate three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows:

Required:

1. Assuming that the desired rate of return is 6%, prepare a net present value analysis for each proposal. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest dollar.

2. Determine a present value index for each proposal. If required, round your answers to two decimal places.

3. Which proposal offers the largest amount of present value per dollar of investment?
SelectInstall Internet Bill-PayBranch Office ExpansionComputer System UpgradeItem 13

Branch
Office
Expansion Computer
System
Upgrade Install
Internet
Bill-Pay Amount to be invested $576,679 $439,273 $234,324 Annual net cash flows: Year 1 267,000 200,000 117,000 Year 2 248,000 180,000 81,000 Year 3 227,000 160,000 59,000

Explanation / Answer

Question 2

Considering the 3 projects, Branch Office expansion seems to be resulting in high NPV.

Branch Office Expansion Computer System upgrade Install Internet Bill Pay PV Factor Value PV PV Factor Value PV PV Factor Value PV Cost 1 -576679 -576679 1 -439273 -439273 1 -234324 -234324 Year 1 CF 0.943 267000 251781 0.943 200000 188600 0.943 117000 110331 Year 2 CF 0.893 248000 221464 0.893 180000 160740 0.893 81000 72333 Year 3 CF 0.84 227000 190680 0.84 160000 134400 0.84 59000 49560 NPV 87246 44467 -2100

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