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 $$676,480.$ The net cash flows estimated for the two proposals are as follows:

Year Net Cash Flow

Diamond Core Drill Net Cash Flow

Hydraulic Excavator

$1$ $$216,000$ $$270,000$

$2192,000251,000$

$3192,000231,000$

$4153,000238,000$

$5117,000$

$697,000$

$784,000$

$884,000$

The estimated residual value of the diamond core drill at the end of Year $4$ is $$270,000.$

Present Value of $$1$ at Compound Interest

Year $6\%10\%12\%15\%20\%$

$10\mathrm{.}9430\mathrm{.}9090\mathrm{.}8930\mathrm{.}8700\mathrm{.}833$

$20\mathrm{.}8900\mathrm{.}8260\mathrm{.}7970\mathrm{.}7560\mathrm{.}694$

$30\mathrm{.}8400\mathrm{.}7510\mathrm{.}7120\mathrm{.}6580\mathrm{.}579$

$40\mathrm{.}7920\mathrm{.}6830\mathrm{.}6360\mathrm{.}5720\mathrm{.}482$

$50\mathrm{.}7470\mathrm{.}6210\mathrm{.}5670\mathrm{.}4970\mathrm{.}402$

$60\mathrm{.}7050\mathrm{.}5640\mathrm{.}5070\mathrm{.}4320\mathrm{.}335$

$70\mathrm{.}6650\mathrm{.}5130\mathrm{.}4520\mathrm{.}3760\mathrm{.}279$

$80\mathrm{.}6270\mathrm{.}4670\mathrm{.}4040\mathrm{.}3270\mathrm{.}233$

$90\mathrm{.}5920\mathrm{.}4240\mathrm{.}3610\mathrm{.}2840\mathrm{.}194$

$100\mathrm{.}5580\mathrm{.}3860\mathrm{.}3220\mathrm{.}2470\mathrm{.}162$

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.

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?

Hydraulic Excavator