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 Equip. Ramp FacilitiesComputer Network

Amount to be invested 8000000 20000000 9000000

Annual net cash flows:

Year 1 4000000 12000000 6000000

Year 2 3500000 10000000 5000000

Year 3 2500000 90000004000000

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