Question

Continental rule company is evaluating three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows :

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 pre Ramp Computer Maintenance Facilities Network Equipment $158,484 Amount to be invested $335,748 $528,517 Annual net cash flows: 103,000 250,000 173,000 Year 1 71,000 233,000 156,000 Year 2 52,000 213,000 138,000 Year 3 Present Value of $1 at Compound Interest 12% 15% 20% 10% Year 6% 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482 5 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 7 0.627 0.467 0.404 0.327 0.233 8 0.592 0.4240.361 0.284 0.194 9 10 0.558 0.386 0.322 0.247 0.162 Required: 4 0.792 0.683 0.6360.5720.482 5 0.747 0.621o.567 0.4970.402 6 0.705 0.5640.5070.4320.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.3270.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: I. Assuming that the desired rate of return is 15%, prepare a net present value analysis for each proposal. Use the present value of $1 table above If required, round to the nearest dollar. Maintenance Equipment Ramp Facilities Computer Network $( } Present value of net cash flow total 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 Present Value Index Maintenance Equipment Ramp Facilities Computer Network has the largest net present value, it returns sent value index for the maintenance equipment is less than 3. The computer network has the largest present value index. Although ramp facilities computer network , as revealėd by the present value indexes. The pres

Answer 1

		Maintenance Equipment		Ramp Facilities		Computer Network
Year	PV Factor	Amount	Present Value	Amount	Present Value	Amount	Present Value
			PV Factor X Amount		PV Factor X Amount		PV Factor X Amount
1	0.870	$                            250,000	$                     217,500	$ 1,73,000	$                     150,510	$ 103,000	$                        89,610
2	0.756	$                            233,000	$                     176,148	$ 156,000	$                     117,936	$     71,000	$                        53,676
3	0.658	$                            213,000	$                     140,154	$ 138,000	$                        90,804	$     52,000	$                        34,216
		PV of Net cash flow	$                     533,802		$                     359,250		$                     177,502
		Amount to be invested	$                     528,517		$                     335,748		$                     158,484
		NPV	$                           5,285		$                        23,502		$                        19,018
		Present Value Index	1.01		1.07		1.12