Net Present Value Method, Present Value Index, and Analysis for a service companyContinental 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: MaintenanceEquipmentRampFacilitiesComputerNetworkAmount to be invested$909,173 $541,268 $278,555 Annual net cash flows: Year 1405,000 284,000 178,000 Year 2377,000 256,000 123,000 Year 3344,000 227,000 89,000 Present Value of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83320.8900.8260.7970.7560.69430.8400.7510.7120.6580.57940.7920.6830.6360.5720.48250.7470.6210.5670.4970.40260.7050.5640.5070.4320.33570.6650.5130.4520.3760.27980.6270.4670.4040.3270.23390.5920.4240.3610.2840.194100.5580.3860.3220.2470.162Required:1. Assuming that the desired rate of return is 15%, prepare a net present value analysis for each proposal. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest dollar. Maintenance EquipmentRamp FacilitiesComputer NetworkTotal present value of net cash flow$fill in the blank 1$fill in the blank 2$fill in the blank 3Amount to be investedfill in the blank 4fill in the blank 5fill in the blank 6Net 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 IndexMaintenance Equipmentfill in the blank 10Ramp Facilitiesfill in the blank 11Computer Networkfill in the blank 12

Information Provided: Interest rate = 15% CF outflow (Maintenance) = 909,173 CF outflow (Ramp…

Answered: Assuming that the desired rate of…

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 3PA

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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	$909,173		$541,268		$278,555
Annual net cash flows:
	Year 1	405,000		284,000		178,000
	Year 2	377,000		256,000		123,000
	Year 3	344,000		227,000		89,000

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 15%, 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	$fill in the blank 1	$fill in the blank 2	$fill in the blank 3
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

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