Year 1 2 3 4 5 6 7 8 9 10 Present Value of $1 at Compound Interest 6% 10% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 12% 15% 0.893 0.870 0.797 0.756 0.712 0.658 0.636 0.572 Check My Work 0.567 0.507 0.452 0.404 0.361 0.322 20% 0.833 0.694 0.579 0.482 0.497 0.402 0.432 0.335 0.376 0.279 0.327 0.284 0.247 Present value of net cash flow total Less amount to be invested Net present value Which project should be favored? Electric Shovel ✓ 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 12%. Use the present value table appearing above. Processing Mill Electric Shovel 0.233 0.194 $ Previous
Year 1 2 3 4 5 6 7 8 9 10 Present Value of $1 at Compound Interest 6% 10% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 12% 15% 0.893 0.870 0.797 0.756 0.712 0.658 0.636 0.572 Check My Work 0.567 0.507 0.452 0.404 0.361 0.322 20% 0.833 0.694 0.579 0.482 0.497 0.402 0.432 0.335 0.376 0.279 0.327 0.284 0.247 Present value of net cash flow total Less amount to be invested Net present value Which project should be favored? Electric Shovel ✓ 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 12%. Use the present value table appearing above. Processing Mill Electric Shovel 0.233 0.194 $ Previous
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Accounting
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 $577,246. The net cash flows estimated for the two proposals
are as follows:
Year
1
2
3
4
$184,000
164,000
164,000
131,000
99,000
83,000
72,000
72,000
The estimated residual value of the processing mill at the end of Year 4 is $230,000.
Present Value of $1 at Compound Interest
10%
5
6
7
8
Year
1
2
3
4
6%
0.943
0.890
Processing Mill
0.840
0.792
Net Cash Flow
0.909
0.826
0.751
0.683
12%
0.893
0.797
0.712
0.636
15%
Electric Shovel
0.870
0.756
0.658
0.572
20%
0.833
0.694
0.579
$230,000
213,000
197,000
202,000
0.482
Transcribed Image Text:Year
1
2
3
4
5
6
7
8
9
10
Present Value of $1 at Compound Interest
10%
6%
0.943
0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386
Check My Work
Less amount to be invested
12%
Net present value
Which project should be favored?
Electric Shovel
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
Present value of net cash flow total
0.322
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
$
20%
$
0.833
Determine 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 Mill
Electric Shovel
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
$
$
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