Chapter 12, Problem 3PA

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:

Instructions

1. 1. Assuming that the desired rate of return is 20%, prepare a net present value analysis for each proposal. Use the present value table appearing in Exhibit 2 of this chapter.
2. 2. Determine a present value index for each proposal. (Round to two decimal places.)
3. 3. Which proposal offers the largest amount of present value per dollar of investment? Explain.