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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
First United Bank Inc. is evaluating three capital investment projects by using the net present value method. Relevant data related to the projects are summarized as follows:
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Branch office expansion
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Computer system upgrade
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AtM Kiosk
expansion
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Amount to be invested . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $420,000                 $350,000                 $520,000
Annual net cash flows:
Year 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                       200,000                   190,000                    275,000
Year 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                       160,000                   180,000                    250,000
Year 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                       160,000                   170,000                    250,000
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instructions1.    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.   Â
Which project offers the largest amount of present value per dollar of invest- ment? Explain.
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