Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $739,264. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill Electric Shovel 1 $252,000 $315,000 2 224,000 292,000 3 224,000 270,000 4 179,000 277,000 5 136,000 6 113,000 7 98,000 8 98,000 The estimated residual value of the processing mill at the end of Year 4 is $320,000. 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 3 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 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 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 15%. Use the present value table appearing above. Processing Mill Electric Shovel Present value of net cash flow total $fill in the blank 1 $fill in the blank 2 Less amount to be invested $fill in the blank 3 $fill in the blank 4 Net present value $fill in the blank 5 $fill in the blank 6 Which project should be favored?
Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $739,264. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill Electric Shovel 1 $252,000 $315,000 2 224,000 292,000 3 224,000 270,000 4 179,000 277,000 5 136,000 6 113,000 7 98,000 8 98,000 The estimated residual value of the processing mill at the end of Year 4 is $320,000. 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 3 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 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 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 15%. Use the present value table appearing above. Processing Mill Electric Shovel Present value of net cash flow total $fill in the blank 1 $fill in the blank 2 Less amount to be invested $fill in the blank 3 $fill in the blank 4 Net present value $fill in the blank 5 $fill in the blank 6 Which project should be favored?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $739,264. The net cash flows estimated for the two proposals are as follows:
| Net Cash Flow | ||||
| Year | Processing Mill | Electric Shovel | ||
| 1 | $252,000 | $315,000 | ||
| 2 | 224,000 | 292,000 | ||
| 3 | 224,000 | 270,000 | ||
| 4 | 179,000 | 277,000 | ||
| 5 | 136,000 | |||
| 6 | 113,000 | |||
| 7 | 98,000 | |||
| 8 | 98,000 |
The estimated residual value of the processing mill at the end of Year 4 is $320,000.
| Present Value of $1 at |
|||||
| 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 |
| 3 | 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 |
| 9 | 0.592 | 0.424 | 0.361 | 0.284 | 0.194 |
| 10 | 0.558 | 0.386 | 0.322 | 0.247 | 0.162 |
Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum
| Processing Mill | Electric Shovel | |
| Present value of net cash flow total | $fill in the blank 1 | $fill in the blank 2 |
| Less amount to be invested | $fill in the blank 3 | $fill in the blank 4 |
| Net present value | $fill in the blank 5 | $fill in the blank 6 |
Which project should be favored?
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