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 $$609,594$ $$393,637$ $$177,790$

Annual net cash flows:

Year $1294,000215,000123,000$

Year $2273,000194,00085,000$

Year $3250,000172,00062,000$

Present Value of $$1$ at Compound Interest

Year $6\%10\%12\%15\%20\%$

$10\mathrm{.}9430\mathrm{.}9090\mathrm{.}8930\mathrm{.}8700\mathrm{.}833$

$20\mathrm{.}8900\mathrm{.}8260\mathrm{.}7970\mathrm{.}7560\mathrm{.}694$

$30\mathrm{.}8400\mathrm{.}7510\mathrm{.}7120\mathrm{.}6580\mathrm{.}579$

$40\mathrm{.}7920\mathrm{.}6830\mathrm{.}6360\mathrm{.}5720\mathrm{.}482$

$50\mathrm{.}7470\mathrm{.}6210\mathrm{.}5670\mathrm{.}4970\mathrm{.}402$

$60\mathrm{.}7050\mathrm{.}5640\mathrm{.}5070\mathrm{.}4320\mathrm{.}335$

$70\mathrm{.}6650\mathrm{.}5130\mathrm{.}4520\mathrm{.}3760\mathrm{.}279$

$80\mathrm{.}6270\mathrm{.}4670\mathrm{.}4040\mathrm{.}3270\mathrm{.}233$

$90\mathrm{.}5920\mathrm{.}4240\mathrm{.}3610\mathrm{.}2840\mathrm{.}194$

$100\mathrm{.}5580\mathrm{.}3860\mathrm{.}3220\mathrm{.}2470\mathrm{.}162$

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.

Line Item Description 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 $3$

Less 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.

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 $12$

$3.$ The fill in the blank $1$ of $4$

has the largest present value index. Although fill in the blank $2$ of $4$

has the largest net present value, it returns less present value per dollar invested than does the fill in the blank $3$ of $4$

$,$ as revealed by the present value indexes. The present value index for the fill in the blank $4$ of $4$

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

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