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 $$710,000.$ The net cash flows estimated for the two proposals are as follows:

The estimated residual value of the diamond core drill at the end year $4$ is $$290,000.$

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and

input your answers in the questions below.

Open spreadsheet

Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a

minimum rate of return of $6\%.$ If required, round to the nearest dollar.

Which project should be favored?

Diamond Core Drill $$

Feadtsack

T Check My Wark

For each proposal, multiply the present value factor for each year $($Exhibit $2)$ by that year's net cash flow. Use the residual value of the

Processing Mill to equate the useful lives $($Exhibit $2).$ Subtract the amount to be invested from the total present value of the net cash

flow.Dakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an initial investment of $$710,000.$ The net cash flows estimated for the two proposals are as follows:

Year Net Cash Flow

Diamond Core Drill Net Cash Flow

Hydraulic Excavator

$1$ $$308,000$ $$347,000$

$2260,000315,000$

$3260,000313,000$

$4268,000318,000$

$5177,000$

$6142,000$

$7139,000$

$8139,000$

The estimated residual value of the diamond core drill at the end of Year $4$ is $$290,000.$

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

Open spreadsheet

Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of $6\%.$ 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$$