Net Present Value-Unequal LivesBunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $466,339. The net cash flows estimated for the two proposals are as follows:Net Cash FlowProcessing Mill$159,000142,000142,000113,00086,00072,00062,00062,000The estimated residual value of the processing mill at the end of Year 4 is $200,000.Present Value of $1 at Compound Interest10%Year12345678Year123456789106%0.9430.8900.8400.7920.7470.7050.6650.6270.5920.5580.9090.8260.7510.6830.6210.5640.5130.4670.4240.38612%0.8930.7970.7120.6360.5670.5070.4520.4040.3610.32215%0.8700.7560.6580.5720.4970.4320.3760.3270.2840.247Electric Shovel20%0.8330.694$199,000184,000170,000175,0000.5790.4820.4020.3350.2790.2330.1940.162 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 MillElectric ShovelEEPresent value of net cash flow totalLess amount to be investedNet present valueWhich project should be favored?

Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $466,339. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year 1 2 $159,000 142,000 142,000 113,000 86,000 72,000 62,000 62,000 The estimated residual value of the processing mill at the end of Year 4 is $200,000. Present Value of $1 at Compound Interest 12% 15% 20% 6% 0.943 0.890 10% 0.909 0.893 0.870 0.833 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 0.335 0.705 0.564 0.507 0.432 0.665 0.513 0.452 0.376 0.279 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 0.194 0.558 0.386 0.322 0.247 0.162 3 4 5 6 7 8 Year 1 2 3 4 5 6 Processing Mill 7 8 9 10 Electric Shovel $199,000 184,000 170,000 175,000

Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $466,339. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year 1 2 $159,000 142,000 142,000 113,000 86,000 72,000 62,000 62,000 The estimated residual value of the processing mill at the end of Year 4 is $200,000. Present Value of $1 at Compound Interest 12% 15% 20% 6% 0.943 0.890 10% 0.909 0.893 0.870 0.833 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 0.335 0.705 0.564 0.507 0.432 0.665 0.513 0.452 0.376 0.279 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 0.194 0.558 0.386 0.322 0.247 0.162 3 4 5 6 7 8 Year 1 2 3 4 5 6 Processing Mill 7 8 9 10 Electric Shovel $199,000 184,000 170,000 175,000

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 1CMA

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