Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Net Present Value-Unequal Lives Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have
Net Present Value-Unequal Lives Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $940,145. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill Electric Shovel $286,000 $358,000 255,000 332,000 255,000 306,000 203,000 315,000 154,000 129,000 112,000 B 112,000 The estimated residual value of the processing mill at the end of Year 4 is $360,000. 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 10%. Use the present value table appearing above. Processing Mill Electric Shovel Present value of net cash flow total Less 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
To determine which equipment should be favored we need to calculate the net present value NPV for ea...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