Answered: low Year Processing Mill…

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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Question

Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $720,000. The net cash flows estimated for the two proposals are as follows:

	Net Cash Flow
Year	Processing Mill	Electric Shovel
1	$308,000		$334,000
2	266,000		316,000
3	266,000		324,000
4	280,000		312,000
5	176,000
6	137,000
7	136,000
8	136,000

The estimated residual value of the processing mill at the end of Year 4 is $280,000.

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 15%. If required, round to the nearest dollar.

	Processing Mill	Electric Shovel
Net present value	$fill in the blank 2	$fill in the blank 3

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