PR$\mathrm{.}26\mathrm{.}05$A

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 $$490,000.$ The estimated net cash flows from each

project are as follows:

Net Cash Flows Net Cash Flows

The committee has selected a rate of $12\%$ 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

$$180,000.$

Present Value of $$1$ at Compound

Interest