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:

Instructions
1. Assuming that the desired rate of return is 20%, prepare a net present value analysis for
each proposal. Use the present value of $1 table appearing in this chapter (Exhibit 2).
2. Determine a present value index for each proposal. Round to two decimal places.
3. Which proposal offers the largest amount of present value per dollar of investment?
Explain.

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Maintenance Equipment $8,000,000 Ramp Facilities Computer Network Amount to be invested Annual net cash flows: $20,000,000 9,000,000 Year 1 Year 2 Year 3 4,000,000 3,500,000 2,500,000 12,000,000 10,000,000 9,000,000 6,000,000 5,000,000 4,000,000