Net Present Value Method, Present Value Index, and Analysis

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Question: Net Present Value Method, Present Value Index, and Analysis United Bankshores, Inc. wishes to eva…
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United Bankshores, Inc. wishes to evaluate three capital
investment proposals by using the net present value method.
Relevant data related to the proposals are summarized as
follows:

Branch
Office
Expansion
Computer
System
Upgrade
Install
Internet
Bill-Pay
Amount to be invested $842,560 $487,528 $299,111
Annual net cash flows:
Year 1 349,000 234,000 150,000
Year 2 325,000 211,000 103,000
Year 3 297,000 187,000 75,000
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
6%, prepare a net present value analysis for each proposal. 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 Install Internet Bill-Pay
Present value of net cash flow total $ $ $
Amount to be invested $ $ $
Net present value $ $ $

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

Present Value Index
Branch Office Expansion
Computer System Upgrade
Install Internet Bill-Pay

3. Which proposal offers the largest amount of
present value per dollar of investment?
Computer System Upgrade

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