Net present value-unequal lives Dakota Mining Company has two competing proposals: a diamond core drill or...

Transcribed Image Text:

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 $668,046. 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 $212,000 $265,000 2 189,000 246,000 3 189,000 227,000 4 151,000 233,000 56 114,000 95,000 7 83,000 83.000 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% 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 12%. Use the present value table appearing above. Present value of net cash flow total Amount to be invested Net present value Which project should be favored? Hydraulic Excavator Hydraulic Diamond Core Drill Excavator 727,009 X 668,046 668,046 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 $668,046. 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 $212,000 $265,000 2 189,000 246,000 3 189,000 227,000 4 151,000 233,000 56 114,000 95,000 7 83,000 83.000 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% 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 12%. Use the present value table appearing above. Present value of net cash flow total Amount to be invested Net present value Which project should be favored? Hydraulic Excavator Hydraulic Diamond Core Drill Excavator 727,009 X 668,046 668,046