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 Ramp Facilities Computer Network Equipment Amount to be invested $912,141 $576,731 $259,018 Annual net cash flows: Year 1 391,000 160,000 Year 2 278,000 250,000 222,000 364,000 332,000 110,000 Year 3 80,000

Answer 1

The computer Network has the largest present value theex. Although Ramp Facilities has the largest net present value, it returns ress Present value per dollar invested than does the computer Network as revealed by the present Value ! Foo the maintenance Equipment is less than I, indicating that It does not meet the minimum rate of return standard

of Answer: Computation of Net Present value. year PVFiry leash Flow ! Maintenance Equipment Ramp Facilities Computer Network 12% Cash Flow / Presentuale Cash Flow PV Cashflow Pv. 10.393 391000 349163 278000 248254 160,000 142830 10.797 364000 290108 259000 199 250 110.000 87670 0.712 332000 236384 222000158064 80.000 56960 present value of in Flow 8956551 605568 2 87510 less: PV of out 912141 1 576731 259012 NOV 0-16486 $28837 $ 28492 I Cret present value 2: present value index = Prof inflows DV op-outflows Proposals maintainco Equpmeni Pindex 895655. 10.98 912141 Ramp Facilities 1.65 605568 576731 287510 259013 computer network