Gold Creek Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $846,778. The net cash flows estimated for the two proposals are as follows:

The estimated residual value of the processing mill at the end of Year 4 is $360,000.

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.

Which project should be favored?

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Net Cash Flow YearProcessing Mill Electric Shovel $363,000 336,000 310,000 319,000 1 $290,000 2258.000 13 /258,000 4206,000 5 157,000 6 131,000 7113,000 8 113,000 Present Value of Sl at Compound Interest .1090 |12% 15% 20% 0.943 0.909 0.893 0.870 0.833 0.890 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 0567 0.497 0.402 60.705 0.5640.507 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 0.592 0.4240.361 0.284 0.194 0.558 0.386 0.322 0.247 0.162 Year 6% 10 Processing MillElectric Shovel Present value of net cash flow total Less amount to be invested Net present value