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 Computer Equipment Facilities Network Amount to be invested $862,100 $529,165 $269,313 Annual net cash flows: Year 1 388,000 275,000 175,000 Year 2 361,000 248,000 121,000 Year 3 330,000 220,000 88,000
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 Computer Equipment Facilities Network Amount to be invested $862,100 $529,165 $269,313 Annual net cash flows: Year 1 388,000 275,000 175,000 Year 2 361,000 248,000 121,000 Year 3 330,000 220,000 88,000
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter15: Capital Investment Analysis
Section: Chapter Questions
Problem 15.3.3P
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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
Ramp
Computer
Equipment
Facilities
Network
Amount to be invested
$862,100
$529,165
$269,313
Annual net cash flows:
Year 1
388,000
275,000
175,000
Year 2
361,000
248,000
121,000
Year 3
330,000
220,000
88,000
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
0.890
0.826
0.797
0.756
0.694
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482
0.747
0.621
0.567
0.497
0.402
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
0.592
0.424
0.361
0.284
0.194
10
0.558
0.386
0.322
0.247
0.162](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4075dd7b-7cf0-4080-a9ab-c20ff4793850%2F8c7576e7-8ecb-4bb7-8940-0ab479bc4ec3%2Fkldzar_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:
Maintenance
Ramp
Computer
Equipment
Facilities
Network
Amount to be invested
$862,100
$529,165
$269,313
Annual net cash flows:
Year 1
388,000
275,000
175,000
Year 2
361,000
248,000
121,000
Year 3
330,000
220,000
88,000
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
0.890
0.826
0.797
0.756
0.694
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482
0.747
0.621
0.567
0.497
0.402
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
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 $1 table above. If required, use the minus sign to indicate a negative net present value. If
required, round to the nearest dollar.
Maintenance Equipment
Ramp Facilities
Computer Network
Present value of net cash flow total
2$
$4
Amount to be invested
%$
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
has the largest present value index. Although
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
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%2F4075dd7b-7cf0-4080-a9ab-c20ff4793850%2F8c7576e7-8ecb-4bb7-8940-0ab479bc4ec3%2Fh1qo25w_processed.png&w=3840&q=75)
Transcribed Image Text: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 $1 table above. If required, use the minus sign to indicate a negative net present value. If
required, round to the nearest dollar.
Maintenance Equipment
Ramp Facilities
Computer Network
Present value of net cash flow total
2$
$4
Amount to be invested
%$
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
has the largest present value index. Although
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
is less than 1, indicating that it does not meet the minimum rate of return standard.
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