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Determine a present value index for each proposal

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Reference no: EM131611646

Question - Rocky Mountain Railroad Company wishes to evaluate three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows:

                                         Route Expansion      Acquire Railcars      New Maintenance Yard

Amount to be invested           $560,000                 $280,000                 $425,000

Annual net cash flows:

 Year 1                                 200,000                   140,000                  175,000

 Year 2                                 250,000                   130,000                  175,000

 Year 3                                 350,000                   125,000                  200,000

Instructions:

a. Assuming that the desired rate of return is 15%, prepare a net present value analysis for each proposal.

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

c. Choose which proposal is best.

Reference no: EM131611646

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