Answered step by step
Verified Expert Solution
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
Dakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an initial investment of $715,855. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Diamond Core Drill Net Cash Flow Hydraulic Excavator Year 1 $244,000 2 217,000 $305,000 283,000 3 217,000 261,000 4 173,000 268,000 5 132,000 6 110,000 7 95,000 B 95,000 The estimated residual value of the diamond core drill at the end of Year 4 is $310,000. 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 15%. Use the present value table appearing above. Diamond Core Drill Hydraulic Excavator Present value of net cash flow total Amount to be invested Net present value Which project should be favored?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Analyzing Equipment Proposals for Dakota Mining Company Minimum Required Rate of Return 15 Present V...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started