Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribedimage text in transcribed

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 Equipment $782,307 Ramp Facilities Computer Network $481,390 $230,148 Amount to be invested Annual net cash flows: Year 1 339,000 315,000 288,000 Year 2 234,000 211,000 187,000 142,000 98,000 Year 3 71,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.833 0.694 0.579 0.482 0.9430 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 .558 0.893 0.797 0.712 0.636 0.567 0.507 0.402 .909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 0.335 0.452 0.404 0.279 0.233 0.194 0.162 0.361 0.322 10 0 Required: 1. Assuming that the desired rate of return is 12%, 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 computer network has the largest present value index. Although ramp facilities has the largest net present value, it returns less present value per dollar invested than does the computer network , as revealed by the present value indexes. The present value index for the maintenance equipment is less than 1, indicating that it does not meet the minimum rate of return standard

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Corporate Financial Accounting

Authors: Carl S. Warren, James M. Reeve, Jonathan E. Duchac

12th edition

1305041399, 1285078586, 978-1-133-9524, 9781133952428, 978-1305041394, 9781285078588, 1-133-95241-0, 978-1133952411

More Books

Students also viewed these Accounting questions