Barton Steel is considering the purchase of a new steel mill. The first option is a top of the line high efficiency mill with a cost of $35 million. This mill will generate cash flows of $8 million per year for the next six years. At the end of the sixth year, Barton will have to reclaim the land under the new mill at a cost of $2 million. The second option is an economy mill that will generate $5 million in cash flows for the next six years, but require no land reclamation. This mill costs $20 million. If Barton estimates its cost of capital to be 8.2% which project should they accept? Why?

Accept economy mill; NPV $2.97 mil vs. $0.51 mil

Accept high efficiency mill; NPV $11.00 mil vs $10.00 mil

Accept economy mill; NPV $2.97 mil vs. $1.76 mil

Accept high efficiency mill; NPV $1.76 mil vs. $0.51 mil