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Net Present Value-Unequal Lives Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipme an initial investment of $800,474. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year 1 2 Processing Mill $274,000 244,000 244,000 Electric Shovel $343,000 318,000 293,000

Net Present Value-Unequal Lives Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipme an initial investment of $800,474. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year 1 2 Processing Mill $274,000 244,000 244,000 Electric Shovel $343,000 318,000 293,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 $800,474. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year 1 $274,000 244,000 244,000 195,000 148,000 123,000 107,000 107,000 The estimated residual value of the processing mill at the end of Year 4 is $340,000. Present Vale of $1 at Compound Interest 6% 0.943 0.890 0.840 0.792 0.747 0.705 2 3 4567 Processing Mill Year 10% 0.903 0.826 0.751 0.683 0.621 0.564 12% 0.893 0.797 0.712 0.636 0.567 0.507 Electric Shovel $343,000 318,000 293,000 301,000 20% 0.870 0.033 0.756 0.694 0.658 0.579 0.572 0.482 0.497 0.402 0.432 0.335 279 15%. und
Transcribed Image Text: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 $800,474. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year 1 $274,000 244,000 244,000 195,000 148,000 123,000 107,000 107,000 The estimated residual value of the processing mill at the end of Year 4 is $340,000. Present Vale of $1 at Compound Interest 6% 0.943 0.890 0.840 0.792 0.747 0.705 2 3 4567 Processing Mill Year 10% 0.903 0.826 0.751 0.683 0.621 0.564 12% 0.893 0.797 0.712 0.636 0.567 0.507 Electric Shovel $343,000 318,000 293,000 301,000 20% 0.870 0.033 0.756 0.694 0.658 0.579 0.572 0.482 0.497 0.402 0.432 0.335 279 15%. und
7 0.665 0.627 0.592 0.558 0.452 0.376 0.279 0.404 0.327 0.233 0.361 0.284 0.194 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 8 9 10 0.513 0.467 0.424 0.386 Present value of net cash flow total: Lers amount to be invested Net present value Which project should be favored? Electric Shovel Electric Shovel
Transcribed Image Text:7 0.665 0.627 0.592 0.558 0.452 0.376 0.279 0.404 0.327 0.233 0.361 0.284 0.194 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 8 9 10 0.513 0.467 0.424 0.386 Present value of net cash flow total: Lers amount to be invested Net present value Which project should be favored? Electric Shovel Electric Shovel
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