Explanation Calculation of the Net Present Value of the Processing Mill is as follows: BHM Company Calculation of Net Present Value of Processing Mill Year Present Value of $1 at 15% (Exhibit 2) Net Cash Flow in $ Present Value of Net Cash Flow in $ 1 0.870 310,000 $269,700 2 0.756 260,000 $196,560 3 0.658 260,000 $171,080 4 0.572 260,000 $148,720 4 (residual value) 0.572 280,000 $160,160 Total 1,370,000 $946,220 Less: amount to be invested $750,000 Net Present Value $196,220 Table (1) The calculation of net present value of Electric Shovel is as follows: BHM Company Calculation of Net Present Value of Electric Shovel Year Present Value of $1 at 15% (Exhibit 2) Net Cash Flow in $ Present Value of Net Cash Flow in $ 1 0...

Bundle: Accounting, Chapters 1-13, 26th + Working Papers, Chapters 1-17 For Warren/reeve/duchac's Accounting, 26th And Financial Accounting, 14th + ... For Warren/reeve/duchac's Accounting, 26th

26th Edition

ISBN: 9781337498159

Author: Carl Warren, Jim Reeve, Jonathan Duchac

Publisher: Cengage Learning

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. …

Question

Chapter 26, Problem 26.21EX

To determine

Net present value method:

Net present value method is the method which is used to compare the initial cash outflow of investment with the present value of its cash inflows. In the net present value, the interest rate is determined by the business, based on the net income from the investment, and it is also called as the discounted cash flow method.

To determine: The more favorable equipment by comparing the net present value of both the proposals.

Expert Solution & Answer

Chapter 26 Solutions

Bundle: Accounting, Chapters 1-13, 26th + Working Papers, Chapters 1-17 For Warren/reeve/duchac's Accounting, 26th And Financial Accounting, 14th + ... For Warren/reeve/duchac's Accounting, 26th

Ch. 26 - What are the principal objections to the use of...Ch. 26 - Discuss the principal limitations of the cash...Ch. 26 - Prob. 3DQ Ch. 26 - Your boss has suggested that a one-year payback...Ch. 26 - Prob. 5DQ Ch. 26 - Prob. 6DQ Ch. 26 - A net present value analysis used to evaluate a...Ch. 26 - Two projects haw an identical net present value of...Ch. 26 - Prob. 9DQ Ch. 26 - What are the major disadvantages of the use of the...

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