Net Present Value Unequal Lives Bunker Hill Mining Company Has Two Competing Proposals A Processing Mill And An Electri 1 (36.38 KiB) Viewed 21 times
Net Present Value Unequal Lives Bunker Hill Mining Company Has Two Competing Proposals A Processing Mill And An Electri 2 (40.71 KiB) Viewed 21 times
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 $825,939. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill Electric Shovel 1 $283,000 $354,000 252,000 328,000 252,000 303,000 201,000 311,000 153,000 127,000 110,000 B 110,000 The estimated residual value of the processing mill at the end of Year 4 is $350,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.482 0.572 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 0.665 0.279 0.513 0.452 0.376 Previous 2 2 3 4 5 6 7 Check My Work
110,000 110,000 The estimated residual value of the processing mill at the end of Year 4 is $350,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 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 0.233 0.467 0.404 0.327 0.592 0,424 0.361 0.284 9 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 15%. Use the present value table appearing above. Processing Mill Electric Shovel Present value of net cash flow totali Less amount to be invested i Net present value Which project should be favored? Electric Shovel 2 3 4 5 6
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