Northern Highlands 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:

New Maintencance Yard Route Expansion Acquire Railcars

Amount to be invested: $7,000,000 $16,000,000 $10,000,000

Annual net cash flows:

Year 1 $5,000,000 $10,000,000 $5,000,000

Year 2 4,000,000 9,000,000 4,000,000

Year 3 4,000,000 7,000,000 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.

New Maintenance Yard Route Expansion Acquire Railcars

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

New Mainteance Yard __________

Route Expansion __________

Acquire Railcars __________