12.13.14

The internal rate of return method is used by Testerman Construction Co. in analyzing a capital expenditure proposal that involves an investment of $132,620 and annual net cash flows of $36,000 for each of the six years of its useful life.

Determine the internal rate of return for the proposal ____%

Testerman Construction Co has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $800,000. The net cash flows estimated for the two proposals are as follows:

	Net Cash Flow
Year	Processing Mill		Electric Shovel
1	$311,000		$349,000
2	268,000		310,000
3	268,000		321,000
4	243,000		323,000
5	183,000
6	148,000
7	136,000
8	136,000

The estimated residual value of the processing mill at the end of Year 4 is $290,000.

Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 12%. If required, round to the nearest dollar.

	Processing Mill	Electric Shovel
Net present value	$___	$___