tet Present Value Method, Present Value Index, and Analysis to evaluate three ca

Question

tet Present Value Method, Present Value Index, and Analysis to evaluate three capital investment proposals by using the net present value method, Relevant data related to the proposals are summarized as follo Branch Computer Install Branch Office Expansion ComputerInstall Internet Bill-Pay System Upgrade Amount to be invested $708,944$453,598 $247,403 Annual net cash flows: Year 1 Year 2 Year 3 294,000 273,000 250,000 218,000 196,000 174,000 135,000 93,000 68,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.9090.893 0.870 0.833 20.890 0.8260.97 0.756 0.694 30.840 0,751 0.712 0.658 0.579 4 0.792 0.6830.636 0.572 0-482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.33s 0.665 0.513 0.452 0.376 0.279 0.627 0.467 0.404 0.327 0.233 90.592 0.424 0.361 0.284 0.194 10 0.558 0.162 0.386 0.322 0.247

Explanation / Answer

1 Branch office Expansion: Present value of net cash flow total 730212 =(294000*0.943)+(273000*0.89)+(250000*0.84) Amount to be invested 708944 Net present value 21268 Computer system upgrade: Present value of net cash flow total 526174 =(218000*0.943)+(196000*0.89)+(174000*0.84) Amount to be invested 453598 Net present value 72576 Install internet Bill-pay: Present value of net cash flow total 267195 =(135000*0.943)+(93000*0.89)+(68000*0.84) Amount to be invested 247403 Net present value 19792 2 Present value index = Present value of net cash flow total/Amount to be invested Branch office Expansion 1.03 =730212/708944 Computer system upgrade 1.16 =526174/453598 Install internet Bill-pay 1.08 =267195/247403 3 Computer system upgrade

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