eBook 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 Ramp Computer Equipment Facilities Network Amount to be invested $1,007,951 $597,194 $327,625 Annual net cash flows: Year 1 431,000 289,000 203,000 Year 2 401,000 260,000 140,000 Year 3 366,000 231,000 102,000 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 Check My Work Previous Next eBook 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 10%, 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. Ramp Facilities Computer Network 1,007,951 v 597,194 327,625 Maintenance Equipment Total 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. Maintenance Equipment Present Value Index x 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 index for the maintenance equipment as revealed by the present value indexes. The present value is less than 1, indicating that it does not meet the minimum rate of return standard. Check My Work Previous Next >