eBook Net present value-unequal lives Dakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an initial investment of $740,638. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Net Cash Flow Year Diamond Core Drill Hydraulic Excavator 1 $226,000 $283,000 2 201,000 262,000 3 201,000 242,000 4 160,000 249,000 5 122,000 102,000 7 8 88,000 88,000 The estimated residual value of the diamond core drill at the end of Year 4 is $280,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 10 0.558 0.386 0.322 0.247 0.194 0.162 Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 10%. Use the present value table appearing above. Diamond Core Drill Hydraulic Excavator Present value of net cash flow total Amount to be invested Net present value Which project should be favored? Check My Work Save an All work saved.
eBook Net present value-unequal lives Dakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an initial investment of $740,638. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Net Cash Flow Year Diamond Core Drill Hydraulic Excavator 1 $226,000 $283,000 2 201,000 262,000 3 201,000 242,000 4 160,000 249,000 5 122,000 102,000 7 8 88,000 88,000 The estimated residual value of the diamond core drill at the end of Year 4 is $280,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 10 0.558 0.386 0.322 0.247 0.194 0.162 Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 10%. Use the present value table appearing above. Diamond Core Drill Hydraulic Excavator Present value of net cash flow total Amount to be invested Net present value Which project should be favored? Check My Work Save an All work saved.
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 21E: Net present value-unequal lives Bunker Hill Mining Company has two competing proposals: a processing...
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Net present value-unequal lives
Dakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an initial investment of $740,638. The net cash flows estimated for the two proposals are as follows:
Net Cash Flow
Net Cash Flow
Year
Diamond Core Drill
Hydraulic Excavator
1
$226,000
$283,000
2
201,000
262,000
3
201,000
242,000
4
160,000
249,000
5
122,000
102,000
7
8
88,000
88,000
The estimated residual value of the diamond core drill at the end of Year 4 is $280,000.
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482
5
0.747
0.621
0.567
0.497
0.402
6
0.705
0.564
0.507
0.432
0.335
7
0.665
0.513
0.452
0.376
0.279
8
0.627
0.467
0.404
0.327
0.233
0.592
0.424
0.361
0.284
10
0.558
0.386
0.322
0.247
0.194
0.162
Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 10%. Use the present value table appearing above.
Diamond Core Drill Hydraulic Excavator
Present value of net cash flow total
Amount to be invested
Net present value
Which project should be favored?
Check My Work
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