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Solved! Get answer or ask a different Question 10248

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 Equip.                           Ramp Facilities                         Computer Network

Amount to be invested                                                     8000000                                                     20000000                              9000000

Annual net cash flows:                       

Year 1                                                                                  4000000                                                     12000000                                 6000000

Year 2                                                                                  3500000                                                     10000000                                 5000000

Year 3                                                                                   2500000                                                      9000000                                  4000000

1. Assuming that the desired rate of return is 20%, prepare a net present value analysis for each proposal. Use the present value of $1 table appearing in this chapter (Exhibit 2).

2. Determine a present value index for each proposal. Round to two decimal places.

3. Which proposal offers the largest amount of present value per dollar of investment? Explain

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