Question
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
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