Northern Highlands 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 1).
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 in-vestment?Explain.

Transcribed Image Text:

New MaintenanceRoute Acquire Railcars Yard Expansion $7,000,000 $16,000,000 $10,000,000 Amount to be invested Annual net cash flows: Year 1 Year 2 Year 3 0,000000 5,000,000 9,000,000 4,000,000 7,000,000 4,000,000 5,000,000 4000,000 4,000,000