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Net Present Value Method, Present Value Index, and Analysis First United Bank Inc. is evaluating three...

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 $601,461 $411,359 $216,033
Annual net cash flows:
Year 1 317,000 219,000 133,000
Year 2 295,000 197,000 92,000
Year 3 269,000 175,000 67,000
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 12%, 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 ATM Kiosk Expansion
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

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