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 $804,519. The...


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Net Present Value-Unequal Lives<br>Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $804,519. The net cash<br>flows estimated for the two proposals are as follows:<br>Net Cash Flow<br>Year<br>Processing Mill<br>Electric Shovel<br>1<br>$245,000<br>$306,000<br>2<br>218,000<br>284,000<br>3<br>218,000<br>262,000<br>4<br>174,000<br>270,000<br>132,000<br>110,000<br>7<br>96,000<br>8<br>96,000<br>

Extracted text: 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 $804,519. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill Electric Shovel 1 $245,000 $306,000 2 218,000 284,000 3 218,000 262,000 4 174,000 270,000 132,000 110,000 7 96,000 8 96,000
The estimated residual value of the processing mill at the end of Year 4 is $310,000.<br>Present Value of $1 at Compound Interest<br>Year<br>6%<br>10%<br>12%<br>15%<br>20%<br>1<br>0.943<br>0.909<br>0.893<br>0.870<br>0.833<br>2<br>0.890<br>0.826<br>0.797<br>0.756<br>0.694<br>3<br>0.840<br>0.751<br>0.712<br>0.658<br>0.579<br>4<br>0.792<br>0.683<br>0.636<br>0.572<br>0.482<br>0.747<br>0.621<br>0.567<br>0.497<br>0.402<br>0.705<br>0.564<br>0.507<br>0.432<br>0.335<br>7<br>0.665<br>0.513<br>0.452<br>0.376<br>0.279<br>8<br>0.627<br>0.467<br>0.404<br>0.327<br>0.233<br>9<br>0.592<br>0.424<br>0.361<br>0.284<br>0.194<br>10<br>0.558<br>0.386<br>0.322<br>0.247<br>0.162<br>Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 10%. Use the present value table<br>appearing above.<br>Processing Mill<br>Electric Shovel<br>Present value of net cash flow total<br>Less amount to be invested<br>$<br>Net present value<br>$<br>Which project should be favored?<br>

Extracted text: The estimated residual value of the processing mill 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 0.747 0.621 0.567 0.497 0.402 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?

Jun 08, 2022
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