First United Bank Inc. is evaluating three capital investment projects by using

Question

First United Bank Inc. is evaluating three capital investment projects by using the net present value method. Relevant data related to the projects are summarized as follows:

Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20%

1: 0.943 0.909 0.893 0.870 0.833

2: 0.890 0.826 0.797 0.756 0.694

3: 0.840 0.751 0.712 0.658 0.579

4: 0.792 0.683 0.636 0.572 0.482

5: 0.747 0.621 0.567 0.497 0.402

6: 0.705 0.564 0.507 0.432 0.335

7: 0.665 0.513 0.452 0.376 0.279

8: 0.627 0.467 0.404 0.327 0.233

9: 0.592 0.424 0.361 0.284 0.194

10: 0.558 0.386 0.322 0.247 0.162

Required: 1. Assuming that the desired rate of return is 15%, prepare a net present value analysis for each project. 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. Branch Office Expansion Computer System Upgrade ATM Kiosk Expansion Present value of net cash flow total: $ $ $ Less amount to be invested: $ $ $ Net present value: $ $ $ 2. Determine a present value index for each project. If required, round your answers to two decimal places. Present Value Index Branch Office Expansion Computer System Upgrade ATM Kiosk Expansion 3. The has the largest present value index. Although has the largest net present value, it returns less present value per dollar invested than does the , as revealed by the present value indexes. The present value index for the is less than 1, indicating that it does not meet the minimum rate of return standard.

Explanation / Answer

VALUES NOT GIVEN

NET PRESENT VALUE=PRESENT VALUE ALL FUTURE CASH FLOWS

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