Net Present Value-Unequal LivesBunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $466,339. The net cash flows estimated for the two proposals are as follows:Net Cash FlowProcessing Mill$159,000142,000142,000113,00086,00072,00062,00062,000The estimated residual value of the processing mill at the end of Year 4 is $200,000.Present Value of $1 at Compound Interest10%Year12345678Year123456789106%0.9430.8900.8400.7920.7470.7050.6650.6270.5920.5580.9090.8260.7510.6830.6210.5640.5130.4670.4240.38612%0.8930.7970.7120.6360.5670.5070.4520.4040.3610.32215%0.8700.7560.6580.5720.4970.4320.3760.3270.2840.247Electric Shovel20%0.8330.694$199,000184,000170,000175,0000.5790.4820.4020.3350.2790.2330.1940.162 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 MillElectric ShovelEEPresent value of net cash flow totalLess amount to be investedNet present valueWhich project should be favored?

Net Present value is present value of cash flow minus initial investment.

Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $466,339. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year 1 2 $159,000 142,000 142,000 113,000 86,000 72,000 62,000 62,000 The estimated residual value of the processing mill at the end of Year 4 is $200,000. Present Value of $1 at Compound Interest 12% 15% 20% 6% 0.943 0.890 10% 0.909 0.893 0.870 0.833 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 0.335 0.705 0.564 0.507 0.432 0.665 0.513 0.452 0.376 0.279 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 0.194 0.558 0.386 0.322 0.247 0.162 3 4 5 6 7 8 Year 1 2 3 4 5 6 Processing Mill 7 8 9 10 Electric Shovel $199,000 184,000 170,000 175,000

Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $466,339. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year 1 2 $159,000 142,000 142,000 113,000 86,000 72,000 62,000 62,000 The estimated residual value of the processing mill at the end of Year 4 is $200,000. Present Value of $1 at Compound Interest 12% 15% 20% 6% 0.943 0.890 10% 0.909 0.893 0.870 0.833 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 0.335 0.705 0.564 0.507 0.432 0.665 0.513 0.452 0.376 0.279 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 0.194 0.558 0.386 0.322 0.247 0.162 3 4 5 6 7 8 Year 1 2 3 4 5 6 Processing Mill 7 8 9 10 Electric Shovel $199,000 184,000 170,000 175,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Deep Mines Ltd. of Saskatchewan is contemplating the purchase of equipment to exploit a mineral deposit located on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers Working capital required Net annual cash receipts Cost to construct new roads in three years Salvage value of equipment in four years *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance and so forth. It is estimated that the mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company's discount rate is 20%. Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. Required: 1-a. Determine the NPV of the proposed mining project. (Negative amount…
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $325,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $325,000 investment for new machinery with a three-year life and no salvage value. The two projects yield the following predicted annual results. The company uses straight-line depreciation, and cash flows occur evenly throughout each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Project Y Project Z Sales $ 370,000 $ 296,000 Expenses Direct materials 51,800 37,000 Direct labor 74,000 44,400 Overhead including depreciation 133,200 133,200 Selling and administrative expenses 26,000 26,000 Total expenses 285,000 240,600 Pretax income 85,000 55,400 Income taxes (38%) 32,300 21,052 Net income $ 52,700 $…
Windhoek Mines, Ltd., of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers $ 310,000 Working capital required $ 190,000 Annual net cash receipts $ 125,000 * Cost to construct new roads in year three $ 58,000 Salvage value of equipment in four years $ 83,000 *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company’s required rate of return is 18%. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required:…
Tulsa Company is considering investing in new bottling equipment and has two options: Option A has a lower initial cost but would require a significant expenditure to rebuild the machine after four years; Option B has higher maintenance costs, but also has a higher salvage value at the end of its useful life. Tulsa’s cost of capital is 11 percent. The following estimates of the cash flows were developed by Tulsa’s controller: Option A Option B Initial investment $ 320,000 $ 454,000 Annual cash inflows 150,000 160,000 Annual cash outflows 70,000 75,000 Costs to rebuild 120,000 0 Salvage value 0 24,000 Estimated useful life 8 years 8 years Required: Calculate NPV for both options. (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your "Present Values" to the nearest whole dollar amount.)
Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $740,000. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill Electric Shovel 1 $317,000 $344,000 2 267,000 315,000 3 267,000 312,000 4 255,000 321,000 5 188,000 6 149,000 7 132,000 8 132,000 The estimated residual value of the processing mill at the end of Year 4 is $290,000. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 10%. If required, round to the nearest dollar. Processing Mill Electric Shovel Net present…
Roosevelt Communication is trying to estimate the Year 1 operating cash flow for a proposed project. The assets required for the project were fully depreciated at the time of purchase. The financial staff has collected the following information: Sales revenues $13.3 million Operating Costs 8.4 million Interest Expense 1.3 million Roosevelt has also determined that this project would cannabalize one of its other projecrs by $1.6 million of cash flow (before taxes) per year. The firm has a 25 percent tax rate, and its WACC is 8 percent. Calculate the project's operating cash flow for Year 1. Answers: a. $ -25,000 b. $2,475,000 c. $1,500,000 d. $2,700,000 e. $3,675,000
Garcìa Co. can invest in one of two alternative projects. Project Y requires a $360,000 initial investment for new machinery with a four-year life and no salvage value. Project Z requires a $360,000 initial investment for new machinery with a three-year life and no salvage value. The two projects yield the following annual results. Cash flows occur evenly within each year. Required 1. Compute each project's annual net cash flows. 2. Compute each project's payback period. If the company bases investment decisions solely on payback period, which project will it choose? 3. Compute each project's accounting rate of return. If the company bases investment decisions solely on accounting rate of return, which project will it choose? 4. Compute each project's net present value using 8% as the discount rate. If the company bases investment decisions solely on net present value, which project will it choose?
Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers Working capital required Annual net cash receipts Cost to construct new roads in three years Salvage value of equipment in four years $ 430,000 $ 215,000 $ 150,000* $ 63,000 $ 88,000 "Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company's required rate of return is 18%. Required: a. What is the net present value of the proposed mining project? b. Should the project be accepted? Answer is complete but not entirely correct. Complete…
Tulsa Company is considering investing in new bottling equipment and has two options: Option A has a lower initial cost but would require a significant expenditure to rebuild the machine after four years; Option B has higher maintenance costs, but also has a higher salvage value at the end of its useful life. Tulsa’s cost of capital is 11 percent. The following estimates of the cash flows were developed by Tulsa’s controller: Option A Option B Initial investment $ 320,000 $ 454,000 Annual cash inflows 150,000 160,000 Annual cash outflows 70,000 75,000 Costs to rebuild 120,000 0 Salvage value 0 24,000 Estimated useful life 8 years 8 years Required: Calculate NPV. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your "Present Values" to the nearest whole…
Windhoek Mines, Ltd., of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers $ 310,000 Working capital required $ 190,000 Annual net cash receipts $ 125,000 * Cost to construct new roads in year three $ 58,000 Salvage value of equipment in four years $ 83,000 *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company’s required rate of return is 18%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.…
If a copy center is considering the purchase of a new copy machine with an initial investment cost of $145,800 and the center expects an annual net cash flow of $18,000 per year, what is the payback period? years
Windhoek Mines, Ltd., of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers $ 275,000 Working capital required $ 100,000 Annual net cash receipts $ 120,000 * Cost to construct new roads in year three $ 40,000 Salvage value of equipment in four years $ 65,000 *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company’s required rate of return is 20%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.…