Question: Net Present ValueUnequal Lives Dakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an
Net Present ValueUnequal 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 $730,000. 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 | $312,000 | $338,000 |
| 2 | 277,000 | 318,000 |
| 3 | 277,000 | 312,000 |
| 4 | 270,000 | 320,000 |
| 5 | 176,000 | |
| 6 | 148,000 | |
| 7 | 132,000 | |
| 8 | 132,000 |
The estimated residual value of the diamond core drill at the end of Year 4 is $270,000.
Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 15%. If required, round to the nearest dollar.
| Line Item Description | Diamond Core Drill | Hydraulic Excavator |
|---|---|---|
| Net present value | fill in the blank 1 of 2$ | fill in the blank 2 of 2$ |
Which project should be favored?
Diamond Core DrillHydraulic ExcavatorNeither because they are equal
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