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 $815,432 $506,778 $250,000 Annual net cash flows: Year 1 363,000 261,000 160,000 Year 2 338,000 235,000 110,000 Year 3 309,000 209,000 80,000 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 3 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 0.665 0.513 0.452 0.376 0.279 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 Total present value of net cash flow Amount to be invested Net present value
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 $815,432 $506,778 $250,000 Annual net cash flows: Year 1 363,000 261,000 160,000 Year 2 338,000 235,000 110,000 Year 3 309,000 209,000 80,000 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 3 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 0.665 0.513 0.452 0.376 0.279 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 Total present value of net cash flow Amount to be invested Net present value
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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
$815,432
$506,778
$250,000
Annual net cash flows:
Year 1
363,000
261,000
160,000
Year 2
338,000
235,000
110,000
Year 3
309,000
209,000
80,000
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
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
5
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
Total present value of net cash flow
Amount to be invested
Net present value
Transcribed Image Text: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
v 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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