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 requir 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 3. The maintenance equipment has the largest present value index. Although maintenance equipment has the largest net present value, it returns less present value per dollar invested than does the maintenance equipment , as revealed by the present value indexes. The present value index for the maintenance equipment is less than 1, indicating that does not meet the minimum rate of return standard.
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 requir 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 3. The maintenance equipment has the largest present value index. Although maintenance equipment has the largest net present value, it returns less present value per dollar invested than does the maintenance equipment , as revealed by the present value indexes. The present value index for the maintenance equipment is less than 1, indicating that does not meet the minimum rate of return standard.
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter15: Capital Investment Analysis
Section: Chapter Questions
Problem 15.3.2P
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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:
Ramp
Computer
Facilities
Network
$423,052
Amount to be invested
Annual net cash flows:
Year 1
Year 2
Year 3
Year
1
2
3
4
5
6
7
8
9
10
6%
Present Value of $1 at Compound Interest
0.943
0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
10%
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
Maintenance
Equipment
$677,579
0.424
0.386
12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
305,000
284,000
259,000
0.361
0.322
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
220,000
198,000
176,000
20%
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
$188,789
125,000
86,000
63,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F58171717-2971-404f-9207-442ca7c3ec66%2Fa2881239-6eab-43e8-b49e-931f541c73e5%2Foqet44k_processed.png&w=3840&q=75)
Transcribed Image Text: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:
Ramp
Computer
Facilities
Network
$423,052
Amount to be invested
Annual net cash flows:
Year 1
Year 2
Year 3
Year
1
2
3
4
5
6
7
8
9
10
6%
Present Value of $1 at Compound Interest
0.943
0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
10%
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
Maintenance
Equipment
$677,579
0.424
0.386
12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
305,000
284,000
259,000
0.361
0.322
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
220,000
198,000
176,000
20%
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
$188,789
125,000
86,000
63,000
![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.
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
Maintenance Equipment Ramp Facilities Computer Network
Ramp Facilities
Computer Network
3. The maintenance equipment
maintenance equipment
has the largest present value index. Although maintenance equipment has the largest net present value, it returns less present value per dollar invested than does the
as revealed by the present value indexes. The present value index for the maintenance equipment
is less than 1, indicating that it does not meet the minimum rate of return standard.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F58171717-2971-404f-9207-442ca7c3ec66%2Fa2881239-6eab-43e8-b49e-931f541c73e5%2Frs1pec_processed.png&w=3840&q=75)
Transcribed Image Text: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.
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
Maintenance Equipment Ramp Facilities Computer Network
Ramp Facilities
Computer Network
3. The maintenance equipment
maintenance equipment
has the largest present value index. Although maintenance equipment has the largest net present value, it returns less present value per dollar invested than does the
as revealed by the present value indexes. The present value index for the maintenance equipment
is less than 1, indicating that it does not meet the minimum rate of return standard.
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