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Net present value method, present value index, and analysis 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 Annual net cash flows: $420,000 $350,000 $520,000 Year 1 200,000 190,000 275,000 Year 2 160,000 180,000 250,000 Year 3 160,000 170,000 250,000 Instructions 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 appearing in this chapter (Exhibit 2). 2. Determine a present value index for each project. Round to two decimal places. 3. Which project offers the largest amount of present value per dollar of investment? Explain.

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 26, Problem 26.3BPR
Textbook Problem

Net present value method, present value index, and analysis

 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

Annual net cash flows:

$420,000 $350,000 $520,000
Year 1 200,000 190,000 275,000
Year 2 160,000 180,000 250,000
Year 3 160,000 170,000 250,000

Instructions

  1. 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 appearing in this chapter (Exhibit 2).
  2. 2. Determine a present value index for each project. Round to two decimal places.
  3. 3. Which    project    offers     the largest amount of present value per dollar of investment? Explain.

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Chapter 26 Solutions

Accounting
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