Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Dakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an initial investment of $629,597.

Dakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an initial investment of $629,597. 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 $201,000 $251,000
2 179,000 233,000
3 179,000 215,000
4 143,000 221,000
5 109,000
6 90,000
7 78,000
8 78,000

The estimated residual value of the diamond core drill at the end of Year 4 is $250,000.

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.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing And Assurance Services An Integrated Approach

Authors: Alvin A. Arens . Randal J. Elder . Mark S. Beasley

15th Global Edition

0273790005, 978-0273790006

More Books

Students also viewed these Accounting questions

Question

What is the message repetition?

Answered: 1 week ago

Question

What is the budget for this project?

Answered: 1 week ago