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8:30 1 v2.cengagenow.com Chapter 26 O Net Present Value Method, Present Value Index, and Analysis for a service company 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 Ramp Computer Equipment Facilities Network Amount to be invested $744,622 $497,276 $211,721 Annual net cash flows: Year 1 374,000 277,000 153,000 Year 2 348,000 249,000 106,000 Year 3 318,000 222,000 77,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 .797 .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 .705 0.564 .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 .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 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 ramp facilities has the largest present value index. Although maintenance equipment has the largest net present value, it returns less present value per dollar invested than does the maintenance equipment , as revealed by the present value indexes. The present value index for the ramp facilities is less than 1, indicating that it does not meet the minimum rate of return standard. Check My Work Previous Next Assignment Score: 66.67% Email Instructor Save and Exit Submit Assignment for Grading 3