Question
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
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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:
Maintenance Equipment Ramp Facilities Computer Network Amount to be invested $747,667 $465,824 $243,441 Annual net cash flows: Year 1 333,000 240,000 157,000 Year 2 310,000 216,000 108,000 Year 3 283,000 192,000 79,000 Present Value of $1 at Compound Interest 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.
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 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.
Present Value Index Maintenance Equipment fill in the blank 10 Ramp Facilities fill in the blank 11 Computer Network fill in the blank 12 maintenance equipmentramp facilitiescomputer network
has the largest present value index. Althoughmaintenance equipmentramp facilitiescomputer network
has the largest net present value, it returns less present value per dollar invested than does themaintenance equipmentramp facilitiescomputer network
, as revealed by the present value indexes. The present value index for themaintenance equipmentramp facilitiescomputer network
is less than 1, indicating that it does not meet the minimum rate of return standard.
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