Question Content Area Net present value method, present value index, and analysis for a...
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Net present value method, present value index, and analysis for a service company
Continental Railroad Company is evaluating three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows:
Line Item Description
Maintenance Equipment
Ramp Facilities
Computer Network
Amount to be invested
$706,350
$430,446
$216,342
Annual net cash flows:
Year 1
318,000
226,000
143,000
Year 2
296,000
203,000
99,000
Year 3
270,000
181,000
72,000
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 is 15%, prepare a net present value analysis for each proposal. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest dollar.
Line Item Description
Maintenance Equipment
Ramp Facilities
Computer Network
Total present value of net cash flow
$fill in the blank 1
$fill in the blank 2
$fill in the blank 3
Less amount to be invested
fill in the blank 4
fill in the blank 5
fill in the blank 6
Net present value
$fill in the blank 7
$fill in the blank 8
$fill in the blank 9
2. Determine a present value index for each proposal. If required, round your answers to two decimal places.
