Net Present Value Method, Present Value Index, and Analysis fora service company

Continental Railroad Company is evaluating three capitalinvestment proposals by using the net present value method.Relevant data related to the proposals are summarized asfollows:

		Maintenance Equipment		Ramp Facilities		Computer Network
Amount to be invested		$787,260		$520,465		$256,705
Annual net cash flows:
	Year 1	341,000		246,000		160,000
	Year 2	317,000		221,000		110,000
	Year 3	290,000		197,000		80,000

Present Value of $1 at CompoundInterest
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 is12%, prepare a net present value analysis for each proposal. Usethe present value of $1 table above. If required, use the minussign to indicate a negative net present value. If required, roundto the nearest dollar.

	Maintenance Equipment	Ramp Facilities	Computer Network
Present value of net cash flow total	$	$	$
Amount to be invested	$	$	$
Net present value	$	$	$

2. Determine a present value index for eachproposal. If required, round your answers to two decimalplaces.

	Present Value Index
Maintenance Equipment
Ramp Facilities
Computer Network

3. The ________________ has the largest presentvalue index. Although _________________ has the largest net presentvalue, it returns less present value per dollar invested than doesthe _______________________ , as revealed by the present valueindexes. The present value index for the ______________ is lessthan 1, indicating that it does not meet the minimum rate of returnstandard.