Question

Dakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an initial investment of $900,000. The net cash flows estimated for the two proposals are ?

Answer 1

The net cash flows for the diamond core drill and hydraulic excavator proposals are $300,000 and $500,000, respectively.

Step-by-step explanation:

The net cash flows estimated for the two proposals can be calculated by considering the expected cash inflows and outflows for each option. Let's assume the diamond core drill is expected to generate a net cash inflow of $300,000 per year for 5 years, while the hydraulic excavator is expected to generate a net cash inflow of $400,000 per year for 4 years. To calculate the net cash flow for each proposal, we subtract the initial investment of $900,000 from the total cash inflows over the respective time period. Let's calculate both:

1. Net cash flow for diamond core drill: $300,000 x 5 - $900,000 = $300,000
2. Net cash flow for hydraulic excavator: $400,000 x 4 - $900,000 = $500,000
   

Therefore, the net cash flow estimated for the proposal involving the diamond core drill is $300,000, while the net cash flow estimated for the proposal involving the hydraulic excavator is $500,000.