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	$8,000,000		$20,000,000		$9,000,000
Annual net cash flows:
Year 1	4,000,000		12,000,000		6,000,000
Year 2	3,500,000		10,000,000		5,000,000
Year 3	2,500,000		9,000,000		4,000,000

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
Less amount to be invested
Net present value

2. Determine a present value index for each proposal. If required, round your answers to two decimal places.

	Present Value Index
Maintenance Equipment
Ramp Facilities
Computer Network

3. The

maintenance equipment

ramp facilities

computer network

has the largest present value index. Although

maintenance equipment

ramp facilities

computer network

has the largest net present value, it returns less present value per dollar invested than does the

maintenance equipment

ramp facilities

computer network

, as revealed by the present value indexes. The present value index for the

maintenance equipment

ramp facilities

computer network

is less than 1, indicating that it does not meet the minimum rate of return standard.