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. 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.