Dakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an initial investment of $790,000. 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 $316,000 $348,000 2 259,000 319,000 3 259,000 315,000 4 269,000 317,000 5 173,000 6 132,000 7 144,000 8 144,000 The estimated residual value of the diamond core drill at the end of Year 4 is $290,000. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 6%. If required, round to the nearest dollar. Line Item Description Diamond Core Drill Hydraulic Excavator Net present value fill in the blank 1 of 2$ fill in the blank 2 of 2$

Dakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an initial investment of $790,000. 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 $316,000 $348,000 2 259,000 319,000 3 259,000 315,000 4 269,000 317,000 5 173,000 6 132,000 7 144,000 8 144,000 The estimated residual value of the diamond core drill at the end of Year 4 is $290,000. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 6%. If required, round to the nearest dollar. Line Item Description Diamond Core Drill Hydraulic Excavator Net present value fill in the blank 1 of 2$ fill in the blank 2 of 2$

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 12P

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Year	Net Cash Flow Diamond Core Drill	Net Cash Flow Hydraulic Excavator
1	$316,000	$348,000
2	259,000	319,000
3	259,000	315,000
4	269,000	317,000
5	173,000
6	132,000
7	144,000
8	144,000

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$

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