Net present valueunequal lives OBJ. 3, 4 Bunker Hill Mining Company has two competing proposals: a processing
Question:
Net present value—unequal lives OBJ. 3, 4 Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $750,000. The net cash flows estimated for the two proposals are as follows:
Net Cash Flow Year Processing Mill Electric Shovel 1 $310,000 $330,000 2 260,000 325,000 3 260,000 325,000 4 260,000 320,000 5 180,000 6 130,000 7 120,000 8 120,000 The estimated residual value of the processing mill at the end of Year 4 is $280,000.
Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 15%. Use the present value tables presented in this chapter (Exhibits 2 and 5).
Step by Step Answer:
Financial And Managerial Accounting
ISBN: 9781305267831,9781305267848
13th Edition
Authors: Carl S. Warren , James M. Reeve , Jonathan Duchac