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 $579,407. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill $185,000 1 Electric Shovel $231,000 215,000 198,000 204,000 2 165,000 165,000 3 4 131,000 100,000 5 6 83,000 7 72,000 8 72,000 The estimated residual value of the processing mill the end of Year 4 is $230,000. Present Value of $1 at Compound Interest Year 10% 15% 6% 12% 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 0.712 0.658 0.579 Previous 0.432 02335 0705 0.564 03507 6 0.376 0.452 0.279 7 0.665 0.513 0.404 0.467 0.327 0.233 8 0.627 0.361 0.284 0.194 0.424 9 0.592 0.162 0.247 10 0.558 0.386 0.322 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 657,919 X Present value of net cash flow total 657,919 X Less amount to be invested 657,919 X Net present value Which project should be favored? Electric Shovel Feedback Check My Work For each proposal, multiply the present value factor for each year (Refer Exhibit 2 in the text) by that year's net cash flow. Use the residual value of the Processing Mill to equate the useful lives (Refer Exhibit 2 in the text). Subtract the amount to be invested from the total present value of the net cash flow