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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, 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:

Line Item Description Maintenance Equipment Ramp Facilities Computer Network
Amount to be invested $680,211 $434,006 $219,133
Annual net cash flows:
Year 1 260,000 192,000 122,000
Year 2 242,000 173,000 84,000
Year 3 221,000 154,000 61,000

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 6%, 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.

Line Item Description Maintenance Equipment Ramp Facilities Computer Network
Total present value of net cash flow 646200 464386 241046
Less amount to be invested 680211 434006 219133
Net present value -34011 30380 21913

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

Line Item Description Present Value Index
Maintenance Equipment fill in the blank 10
Ramp Facilities fill in the blank 11
Computer Network fill in the blank 12

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