Question

1. Net Present Value Method, An index computed by dividing the total present value of the net cash flow to be received from a proposed capital investment by the amount to be invested.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		$679,831		$436,634		$209,605
   Annual net cash flows:
   	Year 1	271,000		195,000		122,000
   	Year 2	252,000		176,000		84,000
   	Year 3	230,000		156,000		61,000

   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 6%, 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	$	$	$
   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

Answer 1

1. Assuming that the desired rate of return is 6%, prepare a net present value analysis for each proposal.

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2. Determine a present value index for each proposal.