Net Present Value-Unequal LivesBunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $825,099. The net cash flows estimated for the two proposals are as follows:Net Cash FlowYearProcessing MillElectric Shovel1$263,000$329,0002234,000305,0003234,000281,0004187,000289,000142,0006118,0007103,000103,000The estimated residual value of the processing mill at the end of Year 4 is $330,000.Present Value of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83320.8900.8260.7970.7560.69430.8400.7510.7120.6580.57940.7920.6830.6360.5720.48250.7470.6210.5670.4970.4020.7050.5640.5070.4320.33570.6650.5130.4520.3760.2790.6270.4670.4040.3270.2330.5920.4240.3610.2840.194100.5580.3860.3220.2470.162Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 12%. Use the present value table appearing above.Processing MillElectric ShovelPresent value of net cash flow totalLess amount to be investedNet present valueWhich project should be favored?

Year PV Factor Net Cash flow Present value 1 0.893 263000 234,859 2 0.797 234000…

Answered: Processing Mill Electric Shovel ent…

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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Scenario analysis is defined as the: Multiple Choice determination of the initial cash outlay required to implement a project. determination of changes in NPV estimates when what-if questions are posed. isolation of the effect that a single variable has on the NPV of a project. separation of a project's sunk costs from its opportunity costs. analysis of the effects that a project's terminal cash flows has on the project's NPV.
Which of the following statements is true regarding the payback period? Multiple Choice It measures the length of time that it takes for a project to recover its initial cost from the discounted net cash inflows that it genera It measures the length of time that it takes for a project to recover its initial cost from the net cash inflows that it generates. It measures the length of time that it takes for a project to recover its initial cost from the incremental net operating income that It measures the length of time that it takes for a project to recover its initial cost from the discounted incremental net operating it generates.
13.Concerning incremental project cash flow, this is a cost one would never count as a cash flow of the project. A. taxes paid B. financing costs C. initial investment D. operating expenses of the project
Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project’s IRR. Consider the following situation: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $2,225,000. The project’s expected cash flows are: Year Cash Flow Year 1 $350,000 Year 2 –125,000 Year 3 450,000 Year 4 450,000 Green Caterpillar Garden Supplies Inc.’s WACC is 7%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): -12.63% 26.46% 30.64% 29.24% If Green Caterpillar Garden Supplies Inc.’s managers select projects based on the MIRR criterion,…
Cash flows that are directly associated with a project are called O sunk costs. terminal costs. incremental cash flows. current cash flows.
Opportunity Cost In the context of capital budgeting, what is an NG AND CONCEPTS REVIEW 9.2 Depreciation Gjyen the choice would a firm prefer to use MACRS 9.1 opportunity cost?

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Processing Mill Electric Shovel ent value of net cash flow total amount to be invested present value th project should be favored?