Net present value—unequal livesDakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an initial investment of $900,000. The net cash flows estimated for the two proposals are as follows:YearNet Cash FlowDiamond Core DrillNet Cash FlowHydraulic Excavator1$300,000$475,0002 300,000 450,0003 275,000 350,0004 250,000 200,0005 200,000 6 100,000 7 50,000 8 50,000 The estimated residual value of the diamond core drill at the end of Year 4 is $450,000.Year6%10%12%15%20%10.9430.9090.8930.8700.83320.8900.8260.7970.7560.69430.8400.7510.7120.6580.57940.7920.6830.6360.5720.48250.7470.6210.5670.4970.40260.7050.5640.5070.4320.33570.6650.5130.4520.3760.27980.6270.4670.4040.3270.23390.5920.4240.3610.2840.194100.5580.3860.3220.2470.162Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 15%. Use the present value table appearing above. If required, round to the nearest dollar.Line Item DescriptionDiamond Core DrillHydraulic ExcavatorPresent value of net cash flow total$fill in the blank 1$fill in the blank 2Amount to be investedfill in the blank 3fill in the blank 4Net present value$fill in the blank 5$fill in the blank 6Which project should be favored?

Year Net cash flow PV factor @15% Present value (Net cash flow* PV factor) 1 300,000 0.870…

Answered: ning Company has two competing…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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 $900,000. The net cash flows estimated for the two proposals are as follows:

Year	Net Cash Flow Diamond Core Drill	Net Cash Flow Hydraulic Excavator
1	$300,000	$475,000
2	300,000	450,000
3	275,000	350,000
4	250,000	200,000
5	200,000
6	100,000
7	50,000
8	50,000

The estimated residual value of the diamond core drill at the end of Year 4 is $450,000.

Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	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
5	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
8	0.627	0.467	0.404	0.327	0.233
9	0.592	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. If required, round to the nearest dollar.

Line Item Description	Diamond Core Drill	Hydraulic Excavator
Present value of net cash flow total	$fill in the blank 1	$fill in the blank 2
Amount to be invested	fill in the blank 3	fill in the blank 4
Net present value	$fill in the blank 5	$fill in the blank 6

Which project should be favored?

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