Rocky Mountain Railroad Company wishes to evaluate three capital investment proposals by using the net present value method.Relevant data related to the proposals are summarized as follows:

RouteAcquireNew Maintenance

ExpansionRailcarsYard

Amount to be invested$560,000$280,000$425,000

Annual net cash flows:

Year 1200,000140,000175,000

Year 2250,000130,000175,000

Year 3350,000125,000200,000

Instructions:

a.Assuming that the desired rate of return is 15%, prepare a net present value analysis for each proposal.

b.Determine a present value index for each proposal.Round to two decimal places.

c.Choose which proposal is best.