Mid-Continent 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:

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 appearing in this chapter (Exhibit 1).
2. Determine a present value index for each proposal. Round to two decimal places.
3.  Which proposal offers the largest amount of present value per dollar of in-vestment? Explain.

Exhibit 1:

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New Maintenance Route Expansion $20,000,000 Acquire Railcars Yard Amount to be invested Annual net cash flows: Year 1 Year 2 Year 3 $12,000,000 $36,000,000 22,000,000 18,500,000 16,000,000 12,000,000 11,000,000 9,500,000 4,800,000 4,500,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 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 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 0.665 0.513 0.452 0.376 0.279 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