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Net Present Value-Unequal Lives Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an
Net Present Value-Unequal Lives Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $742,757. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill Electric Shovel 1 $236,000 $295,000 2 210,000 274,000 3 210,000 253,000 168,000 260,000 5 127,000 6 106,000 7 92,000 8 92,000 4 The estimated residual value of the processing mill at the end of Year 4 is $300,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.658 0.579 0.712 0.636 4 0.792 0.683 0.572 0.482 5 0.747 0.621 0.567 0.497 0.432 0.402 0.335 6 0.705 0.564 0.507 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.223 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 12%. Use the present value table appearing above. Processing Mill Electric Shovel Present value of net cash flow total $ $ Less amount to be invested s Net present value Which project should be favored
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