Answer Happy

Settings and more 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 $580,101. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill Electric Shovel 1 $233,000 $291,000 2 207,000 270,000 207,000 249,000 165,000 256,000 5 126,000 6 105.000 7 91,000 91,000 The estimated residual value of the processing mill at the end of Year 4 is $290,000. 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 0.840 0.751 0.712 0.658 0.579 MAAD *** 3 4 3
105,000 7 91,000 8 91,000 The estimated residual value of the processing mill at the end of Year 4 is $290,000. 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 15%. Use the present value table appearing above. Processing Mill Electric Shovel
0.705 0.564 0.335 0.665 0.513 0.279 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 15%. 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? Electric Shovel ✓ Featrack Check My Work For each proposal, multiply the present value factor for each year (Refer Exhibit 2 in the text) by that year's net cash flow. Use the residual value of the Processing Mill to equate the useful lives (Refer Exhibit 2 in the text). Subtract the amount to be invested from the total present value of the net cash flow. 7 8 0.507 0.432 0.452 0.376