Net Present Value-Unequal LivesDakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipmenthave an initial investment of $710,000. The net cash flows estimated for the two proposals are as follows:Net Cash FlowYearDiamond Core DrillNet Cash FlowHydraulic Excavator1$308,0002260,000$347,000315,0003260,000313,0004268,000318,0005177,0006142,0007139,0008139,000The estimated residual value of the diamond core drill 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, andinput your answers in the questions below.Open spreadsheetDetermine which equipment should be favored, comparing the net present values of the two proposals and assuming aminimum rate of return of 6%. If required, round to the nearest dollar.Diamond Core DrillHydraulic ExcavatorNet present valueWhich project should be favored?Diamond Core DrillFeedbackCheck My WorkFor each proposal, multiply the present value factor for each year (Exhibit 2) by that year's net cash flow. Use the residual value of theProcessing Mill to equate the useful lives (Exhibit 2). Subtract the amount to be invested from the total present value of the net cashflow.

Net present value refers to the method of capital budgeting used for evaluating the viability of the…

Answered: Dakota Mining Company has two competing…

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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Mulkey Development Company has two competing projects: an electric shovel and a processing mill. Both projects have an initial investment of $762,673. The net cash flows estimated for the two projects are as follows: Net Cash Flow Year Electric Shovel Processing Mill 1 $260,000 $338,000 2 231,000 302,000 3 231,000 278,000 4 185,000 286,000 5 140,000 6 117,000 7 101,000 8 101,000 The estimated residual value of the electric shovel at the end of Year 4 is $330,000. 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…
Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Present Value of Life of the Project A Investment Required Cash Inflows Project Internal Rate (years) of Return $ 160,000 $ 259,323 7 16% B $ 135,000 $ 232,000 12 18% $ 100,000 $ 190,035 7 D $ 164,000 $ 268,136 3 22% 17% The net present values should be computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, second, and so forth. Required: 1. Compute the profitability index for each project. 2. In order of preference, rank the four projects in terms of net present value, profitability index, and internal rate of return. Complete this question by entering your answers in the tabs below. Required 1 Required 2 In order of preference, rank the four projects in terms of net present value, profitability index, and internal rate of return. Net Present Value Profitability…
4.
Labeau Products, Limited, of Perth, Australia, has $21,000 to invest. The company is trying to decide between two alternative uses for the funds as follows: Required: 1. Compute the net present value of Project X. 2. Compute the net present value of Project Y. 3. Which project would you recommend the company accept? Invest in Project X Investment required Annual cash inflows Single cash inflow at the end of 6 years Life of the project The company's discount rate is 18%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required 1 Required 2 Required 3 $ 21,000 $ 8,000 6 years Complete this question by entering your answers in the tabs below. Invest in Project Y $ 21,000 $ 50,000 6 years Compute the net present value of Project X. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount.) Net present value
The investment committee of Sentry Insurance Co. is evaluating two projects, office expansion and upgrade to computer servers. The projects have different useful lives, but each requires an investment of $1,104,000. The estimated net cash flows from each project are as follows: Net Cash Flow Year OfficeExpansion Server 1 $308,000 $407,000 2 308,000 407,000 3 308,000 407,000 4 308,000 407,000 5 308,000 6 308,000 The committee has selected a rate of 15% for purposes of net present value analysis. It also estimates that the residual value at the end of each project's useful life is $0, but at the end of the fourth year, the office expansion's residual value would be $385,000. 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…
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 wou 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 "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 128-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using tables. Required: a. What is the net present value of the proposed mining project? b. Should the project be…
The net present value is incorrect I need help with this one.
Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $665,159. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill Electric Shovel 1 $203,000 $254,000 2 181,000 235,000 3 181,000 217,000 4 144,000 223,000 5 110,000 6 91,000 7 79,000 8 79,000 The estimated residual value of the processing mill at the end of Year 4 is $250,000. 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…
s
of equipment have an initial investment of $728,831. 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 $233,000 $291,000 23 4569 207,000 270,000 207,000 249,000 165,000 256,000 126,000 7 8 105,000 91,000 91,000 The estimated residual value of the diamond core drill at the end of Year 4 is $290,000. 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 7 45 65 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 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 12%. Use the present value table appearing above. Diamond Core Drill Hydraulic…
Roberts Company is considering an investment in equipment that is capable of producing moreefficiently than the current technology. The outlay required is $2,293,200. The equipment isexpected to last five years and will have no salvage value. The expected cash flows associatedwith the project are as follows: Year Cash Revenues Cash Expenses 1 $2,981,160 $2,293,200 2 2,981,160 2,293,200 3 2,981,160 2,293,200 4 2,981,160 2,293,200 5 2,981,160 2,293,200 Required:1. Compute the project’s payback period.2. Compute the project’s accounting rate of return.3. Compute the project’s net present value, assuming a required rate of return of 10 percent.4. Compute the project’s internal rate of return.
Pitt Company is considering two alternative investments. The company requires a 12% return from its investments. Neither option has a salvage value. Project X Project Y Initial investment $244,049 $180,396 Net cash flows anticipated: Year 1 83,000 35,000 Year 2 59,000 56,000 Year 3 91,000 71,000 Year 4 82,000 68,000 Year 5 77,000 27,000 A. Compute the IRR for both projects using the IRR spreadsheet function. Project X fill in the blank 1% Project Y fill in the blank 2% B. Which project should be recommended.

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