Question

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 $638,832 $414,645 $209,562 Annual net cash flows: Year 1 288,000 Year 2 268,000 196,000 176,000 157,000 135,000 93,000 68,000 Year 3 245,000 Present Value of $1 at Compound Interest 6% 10% 12% 15% Year 20% 0.870 0.833 0.943 0.890 .840 0.909 0.826 0.751 0.893 0.797 0.712 3 0 0.756 0.658 0.572 0.694 0.579 0.792 0.683 0.636 0.482 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 0.279 0.665 0.513 0.452 0.376 0.467 0.233 0.627 0.592 .558 0.424 0.386 0.404 0.361 0.322 0.327 0.284 0.247 0.194 0.162 10 0

Answer 1

NPV = Present value of cash inflows - Amount to be invested
	Maintenance Equipment	Ramp Facilities	Computer Network
Present value of net cash flow total	645,220	427,084	243,092
Amount to be invested	638,832	414,645	209,562
Net Present value	6,388	12,439	33,530
Present value Index = Present value of cash inflows/Amount to be invested
Maintenance Equipment	1.01
Ramp Facilities	1.03
Computer Network	1.16