Net present value-unequal livesDakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have aninitial investment of $863,468. The net cash flows estimated for the two proposals are as follows:Year12345678Year12The estimated residual value of the diamond core drill at the end of Year 4 is $330,000.Present Value of $1 at Compound Interest6%10%3Net Cash FlowDiamond Core Drill4$263,000234,000234,000187,000142,000118,000103,000103,0000.9430.8900.8400.7920.9090.8260.7510.683Net Cash FlowHydraulic Excavator12%$329,000305,000281,000289,0000.89315%0.8700.797 0.7560.7120.6580.6360.57220%0.8330.6940.5790.4824 Year123456780.8930.8330.7970.6940.7120.5790.6360.4820.5670.4020.5070.3350.4520.2790.4040.2330.3610.1940.3220.162Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate ofreturn of 10%. Use the present value table appearing above.Diamond Core Drill Hydraulic Excavator9Present Value of $1 at Compound Interest6%10%100.9090.8260.7510.6830.747 0.6210.7050.5640.6650.5130.6270.4670.4240.558 0.3860.9430.8900.8400.7920.592Present value of net cash flow totalAmount to be invested12%Net present valueWhich project should be favored?15%0.8700.7560.6580.5720.4970.4320.3760.3270.2840.24720%

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Description: Net present value-unequal livesDakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have aninitial investment of $863,468. The net cash flows estimated for the two proposals are a

Year Net cash flow PV factor @10% Present value (Net cash flow* PV factor) 1 263,000 0.909…

Answered: $863,468. The net cash flows estimated…

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$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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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