$863,468. The net cash flows estimated for the two p Net Cash Flow Hydraulic Excavator ash Flow Core Drill 3,000 4,000 4,000 7.000 $329,000 305,000 281,000 390.000
$863,468. The net cash flows estimated for the two p Net Cash Flow Hydraulic Excavator ash Flow Core Drill 3,000 4,000 4,000 7.000 $329,000 305,000 281,000 390.000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Topic Video
Question
![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 $863,468. The net cash flows estimated for the two proposals are as follows:
Year
1
2
3
4
5
6
7
8
Year
1
2
The estimated residual value of the diamond core drill at the end of Year 4 is $330,000.
Present Value of $1 at Compound Interest
6%
10%
3
Net Cash Flow
Diamond Core Drill
4
$263,000
234,000
234,000
187,000
142,000
118,000
103,000
103,000
0.943
0.890
0.840
0.792
0.909
0.826
0.751
0.683
Net Cash Flow
Hydraulic Excavator
12%
$329,000
305,000
281,000
289,000
0.893
15%
0.870
0.797 0.756
0.712
0.658
0.636
0.572
20%
0.833
0.694
0.579
0.482
4](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F25e97d0f-17b4-4888-87be-784badc40808%2F04674a07-799c-49ad-aa7c-33545b10cf52%2Fep06vr7_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 $863,468. The net cash flows estimated for the two proposals are as follows:
Year
1
2
3
4
5
6
7
8
Year
1
2
The estimated residual value of the diamond core drill at the end of Year 4 is $330,000.
Present Value of $1 at Compound Interest
6%
10%
3
Net Cash Flow
Diamond Core Drill
4
$263,000
234,000
234,000
187,000
142,000
118,000
103,000
103,000
0.943
0.890
0.840
0.792
0.909
0.826
0.751
0.683
Net Cash Flow
Hydraulic Excavator
12%
$329,000
305,000
281,000
289,000
0.893
15%
0.870
0.797 0.756
0.712
0.658
0.636
0.572
20%
0.833
0.694
0.579
0.482
4
![Year
1
2
3
4
5
6
7
8
0.893
0.833
0.797
0.694
0.712
0.579
0.636
0.482
0.567
0.402
0.507
0.335
0.452
0.279
0.404
0.233
0.361
0.194
0.322
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
9
Present Value of $1 at Compound Interest
6%
10%
10
0.909
0.826
0.751
0.683
0.747 0.621
0.705
0.564
0.665
0.513
0.627
0.467
0.424
0.558 0.386
0.943
0.890
0.840
0.792
0.592
Present value of net cash flow total
Amount to be invested
12%
Net present value
Which project should be favored?
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
20%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F25e97d0f-17b4-4888-87be-784badc40808%2F04674a07-799c-49ad-aa7c-33545b10cf52%2Fbnb0gh_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Year
1
2
3
4
5
6
7
8
0.893
0.833
0.797
0.694
0.712
0.579
0.636
0.482
0.567
0.402
0.507
0.335
0.452
0.279
0.404
0.233
0.361
0.194
0.322
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
9
Present Value of $1 at Compound Interest
6%
10%
10
0.909
0.826
0.751
0.683
0.747 0.621
0.705
0.564
0.665
0.513
0.627
0.467
0.424
0.558 0.386
0.943
0.890
0.840
0.792
0.592
Present value of net cash flow total
Amount to be invested
12%
Net present value
Which project should be favored?
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
20%
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