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   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		Ramp Facilities		Computer Network
   Amount to be invested	$8,000,000		$20,000,000		$9,000,000
   Annual net cash flows:
   Year 1	4,000,000		12,000,000		6,000,000
   Year 2	3,500,000		10,000,000		5,000,000
   Year 3	2,500,000		9,000,000		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.

   	Maintenance Equipment	Ramp Facilities	Computer Network
   Present value of net cash flow total	$fill in the blank 1	$fill in the blank 2	$fill in the blank 3
   Less amount to be invested	$fill in the blank 4	$fill in the blank 5	$fill in the blank 6
   Net present value	$fill in the blank 7	$fill in the blank 8	$fill in the blank 9

   2. Determine a present value index for each proposal. If required, round your answers to two decimal places.

   	Present Value Index
   Maintenance Equipment	fill in the blank 10
   Ramp Facilities	fill in the blank 11
   Computer Network	fill in the blank 12

   3. The

   maintenance equipmentramp facilitiescomputer network

   has the largest present value index. Although

   maintenance equipmentramp facilitiescomputer network

   has the largest net present value, it returns less present value per dollar invested than does the

   maintenance equipmentramp facilitiescomputer network

   , as revealed by the present value indexes. The present value index for the

   maintenance equipmentramp facilitiescomputer network

   is less than 1, indicating that it does not meet the minimum rate of return standard.