EBK ACCOUNTING, CHAPTERS 1-13
27th Edition
ISBN: 9781337514088
Author: WARREN
Publisher: CENGAGE LEARNING - CONSIGNMENT
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 26, Problem 26.21EX
To determine
Net present value method is the method which is used to compare the initial
To determine: The more favorable equipment by comparing the net present value of both the proposals.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
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 $695,302. The net cash flows estimated for the two proposals are as follows:
Net Cash Flow
Year
Processing Mill
Electric Shovel
1
$221,000
$276,000
2
197,000
256,000
3
197,000
236,000
4
157,000
243,000
5
119,000
6
99,000
7
86,000
8
86,000
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
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…
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 $724,991. The net cash flows estimated for the two proposals are as follows:
Net Cash Flow
Year
Processing Mill
Electric Shovel
1
$221,000
$276,000
2
197,000
256,000
3
197,000
236,000
4
157,000
243,000
5
119,000
6
99,000
7
86,000
8
86,000
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
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…
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 $670,208. The net cash flows estimated for the two proposals are as follows:
Net Cash Flow
Year
Processing Mill
Electric Shovel
1
$213,000
$266,000
2
190,000
247,000
3
190,000
228,000
4
151,000
234,000
5
115,000
6
96,000
7
83,000
8
83,000
The estimated residual value of the processing mill at the end of Year 4 is $270,000.
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
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…
Chapter 26 Solutions
EBK ACCOUNTING, CHAPTERS 1-13
Ch. 26 - What are the principal objections to the use of...Ch. 26 - Discuss the principal limitations of the cash...Ch. 26 - Prob. 3DQCh. 26 - Your boss has suggested that a one-year payback...Ch. 26 - Prob. 5DQCh. 26 - Prob. 6DQCh. 26 - A net present value analysis used to evaluate a...Ch. 26 - Two projects haw an identical net present value of...Ch. 26 - Prob. 9DQCh. 26 - What are the major disadvantages of the use of the...
Ch. 26 - Prob. 11DQCh. 26 - Give an example of a qualitative factor that...Ch. 26 - Prob. 13DQCh. 26 - Average rate of return Determine the average rate...Ch. 26 - Average rate of return Determine the average rate...Ch. 26 - Cash payback period A project has estimated annual...Ch. 26 - Cash payback period A project has estimated annual...Ch. 26 - Prob. 26.3APECh. 26 - Net present value A project has estimated annual...Ch. 26 - Internal rate of return A project is estimated to...Ch. 26 - Internal rate of return A project is estimated to...Ch. 26 - Prob. 26.5APECh. 26 - Prob. 26.5BPECh. 26 - Prob. 26.1EXCh. 26 - Average rate of returncost savings Midwest...Ch. 26 - Average rate of returnnew product Micro Tek Inc....Ch. 26 - Calculate cash flows Natures Way Inc. is planning...Ch. 26 - Cash payback period for a service company Prime...Ch. 26 - Cash payback method Lily Products Company is...Ch. 26 - Prob. 26.7EXCh. 26 - Prob. 26.8EXCh. 26 - Net present value methodannuity for a service...Ch. 26 - Prob. 26.10EXCh. 26 - Prob. 26.11EXCh. 26 - Prob. 26.12EXCh. 26 - Net present value method and present value index...Ch. 26 - Prob. 26.14EXCh. 26 - Cash payback period, net present value analysis,...Ch. 26 - Internal rate of return method The internal rate...Ch. 26 - Internal rate of return method for a service...Ch. 26 - Internal rate of return methodtwo projects Munch N...Ch. 26 - Prob. 26.19EXCh. 26 - Prob. 26.20EXCh. 26 - Prob. 26.21EXCh. 26 - Prob. 26.22EXCh. 26 - Sustainable energy capital investment analysis...Ch. 26 - Sustainable product capital investment analysis...Ch. 26 - Average rate of return method, net present value...Ch. 26 - Cash payback period, net present value method, and...Ch. 26 - Net present value method, present value index, and...Ch. 26 - Prob. 26.4APRCh. 26 - Alternative capital investments The investment...Ch. 26 - Capital rationing decision for a service company...Ch. 26 - Average rate of return method, net present value...Ch. 26 - Prob. 26.2BPRCh. 26 - Prob. 26.3BPRCh. 26 - Net present value method, internal rate of return...Ch. 26 - Prob. 26.5BPRCh. 26 - Capital rationing decision for a service company...Ch. 26 - Ethics in Action Danielle Hastings was recently...Ch. 26 - Communication Global Electronics Inc. invested...Ch. 26 - Prob. 26.4CPCh. 26 - Qualitative issues in investment analysis The...Ch. 26 - Prob. 26.6CP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Net present value method, internal rate of return method, and analysis for a service company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: The wind turbines require an investment of 887,600, while the biofuel equipment requires an investment of 911,100. No residual value is expected from either project. Instructions 1. Compute the following for each project: A. The net present value. Use a rate of 6% and the present value of an annuity table appearing in Exhibit 5 of this chapter. B. A present value index. (Round to two decimal places.) 2. Determine the internal rate of return for each project by (A) computing a present value factor for an annuity of 1 and (B) using the present value of an annuity of 1 table appearing in Exhibit 5 of this chapter. 3. What advantage does the internal rate of return method have over the net present value method in comparing projects?arrow_forwardGallant Sports s considering the purchase of a new rock-climbing facility. The company estimates that the construction will require an initial outlay of $350,000. Other cash flows are estimated as follows: Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the rock-climbing facility. Should the company develop the facility if the required rate of return is 6%?arrow_forwardNet 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 $493,400. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill Electric Shovel 1 $150,000 $188,000 2 134,000 174,000 3 134,000 161,000 4 107,000 165,000 5 81,000 6 68,000 7 59,000 8 59,000 The estimated residual value of the processing mill at the end of Year 4 is $190,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 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…arrow_forward
- 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 FlowDiamond Core Drill Net Cash FlowHydraulic 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,…arrow_forwardNet 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 $710,000. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Diamond Core Drill Net Cash Flow Hydraulic Excavator 1 $308,000 2 260,000 $347,000 315,000 3 260,000 313,000 4 268,000 318,000 5 177,000 6 142,000 7 139,000 8 139,000 The estimated residual value of the diamond core drill at the end of Year 4 is $290,000. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 6%. If required, round to the nearest dollar. Diamond Core Drill Hydraulic Excavator Net present value Which project should be…arrow_forwardNet 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 $770,000. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Diamond Core Drill Net Cash Flow Hydraulic Excavator 1 $308,000 $340,000 2 273,000 325,000 3 273,000 325,000 4 251,000 325,000 5 173,000 6 137,000 7 132,000 8 132,000 The estimated residual value of the diamond core drill at the end of Year 4 is $280,000. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 20%. If required, round to the nearest dollar. Diamond Core Drill Hydraulic Excavator Net present value $ 69,413.64 X 115,058.20 Xarrow_forward
- 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 $710,000. 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 $317,000 $341,000 23 4569 7 8 256,000 317,000 256,000 312,000 257,000 319,000 170,000 138,000 147,000 147,000 The estimated residual value of the diamond core drill at the end of Year 4 is $280,000. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. X Open spreadsheet Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 12%. If required, round to the nearest dollar. Diamond Core Drill Net present value 592,850 X $ tA Hydraulic Excavator 271,980 Varrow_forwardNonearrow_forwardCoffer Company is analyzing two potential investments. Project X Cost of machine Net cash flow: Year 1 Year 2 $ 85,470 Project Y $ 65,000 33,000 33,000 3,000 30,000 Year 3 Year 4 33,000 0 • 30,000 25,000 If the company is using the payback period méthod, and it requires a payback period of three years or less, which project(s) should be selected? Multiple Choice Project Y. Project X. Both X and Y are acceptable projects. Neither X nor Y is an acceptable project.arrow_forward
- Subject :- Accountarrow_forwardnet 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 $740,638. The net cash flow is estimated for the two proposals are as follows:arrow_forwardSubject- accountarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning