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1.
Office Expansion:
Annual net cash flow (at the end of each of 6 years)
Present value of an annuity of $1 at 12% for 6 years (Exh. 2)
Present value of annual net cash flows
Less amount to be invested
Net present value
Server Upgrade:
Annual net cash flow (at the end of each of 4 years)
Present value of an annuity of $1 at 12% for 4 years (Exh. 2)
Present value of annual net cash flows
Less amount to be invested
Net present value
2.
Present
Value of Office Server Office Server
$1 at 12% Expansion Upgrade Expansion Upgrade
Year 1
Year 2
Year 3
Year 4
Year 4 (resid. value)
Total
Amount to be invested
Net present value
3.
Net Cash Flow
Net Cash Flow
Net Present Value Analysis
Problem 25(10)-5A
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0%
[Key code here]
Net Present Value Analysis
Present Value of
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1.
Office Expansion:
Annual net cash flow (at the end of each of 6 years) 125,000$
Present value of an annuity of $1 at 12% for 6 years (Exh. 2) 4.111
2.
Present
Value of Office Server Office Server
$1 at 12% Expansion Upgrade Expansion Upgrade
Year 1 0.893 125,000$ 165,000$ 111,625$ 147,345$
Year 2 0.797 125,000 165,000 99,625 131,505
3.
Score:
Instructions
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Net Present Value Analysis
Net Cash Flow
Net Cash Flow
Present Value of
Net Present Value Analysis
To: Investment Committee
Both projects have a positive net present value. This means that both projects meet our minimum expected
Problem 25(10)-5A
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Solution
Section:
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