First United Bank Inc. is evaluating three capital investment projects using the net present value method. Relevant data related to the projects are summarized as follows: Branch Office Expansion Computer System Upgrade ATM Kiosk Expansion Amount to be invested $686,053 $516,654 $295,458 Annual net cash flows: Year 1 411,000 288,000 177,000 Year 2 382,000 259,000 122,000 Year 3 349,000 230,000 89,000 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 20%, 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 $fill in the blank 1 $fill in the blank 2 $fill in the blank 3 Less amount to be invested: $fill in the blank 4 $fill in the blank 5 $fill in the blank 6 Net present value $fill in the blank 7 $fill in the blank 8 $fill in the blank 9 2. Determine a present value index for each project. If required, round your answers to two decimal places. Present Value Index Branch Office Expansion fill in the blank 10 Computer System Upgrade fill in the blank 11 Install Internet Bill-Pay fill in the blank 12 3. Which project offers the largest amount of present value per dollar of investment?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 3PB: Net present value method, present value index, and analysis for a service company First United Bank...

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

	Branch Office Expansion	Computer System Upgrade	ATM Kiosk Expansion
Amount to be invested	$686,053		$516,654		$295,458
Annual net cash flows:
	Year 1	411,000		288,000		177,000
	Year 2	382,000		259,000		122,000
	Year 3	349,000		230,000		89,000

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 20%, 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	$fill in the blank 1	$fill in the blank 2	$fill in the blank 3
Less amount to be invested:	$fill in the blank 4	$fill in the blank 5	$fill in the blank 6
Net present value	$fill in the blank 7	$fill in the blank 8	$fill in the blank 9

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

	Present Value Index
Branch Office Expansion	fill in the blank 10
Computer System Upgrade	fill in the blank 11
Install Internet Bill-Pay	fill in the blank 12

3. Which project offers the largest amount of present value per dollar of investment?

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