Question

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: Required: Determine a present value index for each proposal. If required, round your answers to two decimal places. Present Value Index Proposal 1: $8,000,000 $2,000,000 $9,000,000 Annual net cash flow Year 1 Year 2 Year 3 $3,500,000 $4,000,000 $5,000,000 $10,000,000 $6,000,000 $9,000,000 Rate of return 13% Proposal 1: 9.943 0.909 0.893 Proposal 2: 0.896 0.816 0.396 Proposal 3: 0.75 0.993 0.68 0.747 0.621 0.870 0.833 0.756 0.694 0.599 0.572 0.482 0.403 0.335 0.279 0.513 0.467 0.426 0.55 0.322 0.247 0.567 Value of net cash flow

          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:
Required:
Determine a present value index for each proposal. If required, round your answers to two decimal places.
Present Value Index
Proposal 1: $8,000,000 $2,000,000 $9,000,000
Annual net cash flow
Year 1 Year 2 Year 3
$3,500,000 $4,000,000 $5,000,000
$10,000,000 $6,000,000 $9,000,000
Rate of return 13%
Proposal 1: 9.943 0.909 0.893
Proposal 2: 0.896 0.816 0.396
Proposal 3: 0.75 0.993 0.68
0.747 0.621 0.870
0.833 0.756 0.694
0.599 0.572 0.482
0.403 0.335 0.279
0.513 0.467 0.426
0.55 0.322 0.247
0.567
Value of net cash flow

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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 m 71344

Added by Wesley C.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Supreeta N

08/09/2023

Step 1

Step 1: Calculate the present value of the net cash flows for each proposal using the formula: PV = CF / (1 + r)^n Where PV is the present value, CF is the net cash flow, r is the rate of return, and n is the year. Show more…

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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: Required: Determine a present value index for each proposal. If required, round your answers to two decimal places. Present Value Index Proposal 1: $8,000,000 $2,000,000 $9,000,000 Annual net cash flow Year 1 Year 2 Year 3 $3,500,000 $4,000,000 $5,000,000 $10,000,000 $6,000,000 $9,000,000 Rate of return 13% Proposal 1: 9.943 0.909 0.893 Proposal 2: 0.896 0.816 0.396 Proposal 3: 0.75 0.993 0.68 0.747 0.621 0.870 0.833 0.756 0.694 0.599 0.572 0.482 0.403 0.335 0.279 0.513 0.467 0.426 0.55 0.322 0.247 0.567 Value of net cash flow

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Transcript

00:01 Hello students, here is a question.

00:02 Using net present value and internal rate of return to evaluate an estimated opportunity, dilayat jawan, the president of dawan enterprises is considered to invest the opportunities.

00:13 Because of limited resources, he will be able to invest in only one of them.

00:18 So, project a to purchase a machinery that will enable the factory automation.

00:22 The machine is expected to have a useful life of four years and no salvage value.

00:27 Project b supports a training program that will improve the skills of an employee operating the current equipment.

00:34 Initial cost expenditure of a project a are $400 ,000 and project b are $160 ,000.

00:41 The annual expected cash flow is $126 ,000.

00:45 For a project a, $52 ,800 and the project fee.

00:49 Both investments are expected to provide a cash flow benefits of a next four years.

00:54 So, jawan enterprises desire a rate of return of 8%.

01:00 So, we need to calculate the approximate internal rate of return and npv for this problem.

01:09 So, let us start solving this.

01:12 We need to find the present value and irr.

01:15 So, the cash flow is given in the question.

01:18 The cash flow is $126 ,000 and present value is amount of cash flow into discount rate factor.

01:30 So, the values are $126 ,000 into 3 .312 which gives us $417 ,312...

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