Net present value method, present value index, and analysis for a service company Continental Railroad Company...

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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 $875,163 $555,567 $267,837 Annual net cash flows: Year 1 375,000 278,000 165,000 Year 2 349,000 250,000 114,000 Year 3 319,000 222,000 83,000 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 12%, 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 Total present value of net cash flow Less amount to be invested Net present value 669,837 X 875,163 -73,757 X $ 555,567 236,745 X 267,837 -205,326 X $ -73,757 X $ -31,092 X 2. Determine a present value index for each proposal. If required, round your answers to two decimal places. Present Value Index 0.765 X Maintenance Equipment Ramp Facilities Computer Network 3. The computer network 0.869 X 0.884 X 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 , as revealed by the present value indexes. The present value index for the maintenance equipment is less than 1, indicating that it does not meet the minimum rate of return standard. 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 $875,163 $555,567 $267,837 Annual net cash flows: Year 1 375,000 278,000 165,000 Year 2 349,000 250,000 114,000 Year 3 319,000 222,000 83,000 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 12%, 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 Total present value of net cash flow Less amount to be invested Net present value 669,837 X 875,163 -73,757 X $ 555,567 236,745 X 267,837 -205,326 X $ -73,757 X $ -31,092 X 2. Determine a present value index for each proposal. If required, round your answers to two decimal places. Present Value Index 0.765 X Maintenance Equipment Ramp Facilities Computer Network 3. The computer network 0.869 X 0.884 X 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 , as revealed by the present value indexes. The present value index for the maintenance equipment is less than 1, indicating that it does not meet the minimum rate of return standard.