Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Net Present ValueUnequal Lives Dakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an

Net Present ValueUnequal 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 $730,000. 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 $312,000 $338,000
2 277,000 318,000
3 277,000 312,000
4 270,000 320,000
5 176,000
6 148,000
7 132,000
8 132,000

The estimated residual value of the diamond core drill at the end of Year 4 is $270,000.

Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 15%. 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$

Which project should be favored?

Diamond Core DrillHydraulic ExcavatorNeither because they are equal

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

Survey of Accounting

Authors: Edmonds, old, Mcnair, Tsay

2nd edition

9780077392659, 978-0-07-73417, 77392655, 0-07-734177-5, 73379557, 978-0073379555

More Books

Students also viewed these Accounting questions

Question

1. Explain how business strategy affects HR strategy.

Answered: 1 week ago