Answer Happy

Alternative Capital Investments
The investment committee of Sentry Insurance Co. is evaluating
two projects, office expansion and upgrade to computer servers. The
projects have different useful lives, but each requires an
investment of $1,030,000. The estimated net cash flows from each
project are as follows:
Office
Expansion
Server
The committee has selected a rate of 10% for purposes of net
present value analysis. It also estimates that the residual value
at the end of each project's useful life is $0, but at the end of
the fourth year, the office expansion's residual value would be
$324,000.
Required:
If required, use the minus sign to indicate a negative net
present value.
1. For each project, compute the net
present value. Use the present value of an annuity of $1
table above. Ignore the unequal lives of the
projects. If required, round to the nearest
dollar.
2. For each project, compute the net
present value, assuming that the office expansion is adjusted to a
four-year life for purposes of analysis. Use the present value of
$1 table above. If required, round to the nearest
dollar.
3. The net present value of the two
projects over equal lives indicates that the
office expansionserver upgradeserver upgrade
has a higher net present value and would be a superior
investment.