Chapter 12, Problem 3PB

Net present value method, present value index, and analysis for a service company

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:

   

Instructions

1. 1. Assuming that the desired rate of return is 15%, prepare a net present value analysis for each project. Use the present value table appearing in Exhibit 2 of this chapter.
2. 2. Determine a present value index for each project. (Round to two decimal places.)
3. 3. Which project offers the largest amount of present value per dollar of investment? Explain.