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 $841,093 $503,841 $238,617

Annual net cash flows:

Year 1 414,000 286,000 170,000

Year 2 385,000 257,000 117,000

Year 3 352,000 229,000 85,000

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 20%, 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

3. The has the largest present value index. Although has the largest net present value, it returns less present value per dollar invested than does the , as revealed by the present value indexes. The present value index for the is less than 1, indicating that it does not meet the minimum rate of return standard.