Net Present Value-Unequal Lives Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $651,283. net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill Electric Shovel 1 $222,000 $278,000 198,000 258,000 198,000 238,000 4 158,000 244,000 120,000 6 100,000 7 87,000 87,000 The estimated residual value of the processing mill at the end of Year 4 is $280,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 4 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 7. 0.665 0.513 0.452 0.376 0.279 0227 0222 Previous Ne
Net Present Value-Unequal Lives Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $651,283. net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill Electric Shovel 1 $222,000 $278,000 198,000 258,000 198,000 238,000 4 158,000 244,000 120,000 6 100,000 7 87,000 87,000 The estimated residual value of the processing mill at the end of Year 4 is $280,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 4 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 7. 0.665 0.513 0.452 0.376 0.279 0227 0222 Previous Ne
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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Print Item
87,000
The estimated residual value of the processing mill at the end of Year 4 is $280,000.
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
0.890
0.826
0.797
0.756
0.694
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
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
0.5
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 15%. Use the present
value table appearing above.
Processing Mill
Electric Shovel
Present value of net cash flow total
Less amount to be invested
%24
Net present value
%24
Which project should be favored?
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Print Item
Net Present Value-Unequal Lives
Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $651,283. The
net cash flows estimated for the two proposals are as follows:
Net Cash Flow
Year
Processing Mill
Electric Shovel
1
$222,000
$278,000
198,000
258,000
3
198,000
238,000
158,000
244,000
120,000
100,000
87,000
8.
87,000
The estimated residual value of the processing mill at the end of Year 4 is $280,000.
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
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
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
0227
0222
0.404
Previous
Nex
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