Question
Net present valueunequal lives Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an
Net present valueunequal 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 $780,000. The net cash flows estimated for the two proposals are as follows:
| Net Cash Flow | ||||
| Year | Processing Mill | Electric Shovel | ||
| 1 | $307,000 | $334,000 | ||
| 2 | 253,000 | 310,000 | ||
| 3 | 253,000 | 314,000 | ||
| 4 | 259,000 | 318,000 | ||
| 5 | 171,000 | |||
| 6 | 135,000 | |||
| 7 | 135,000 | |||
| 8 | 135,000 | |||
The estimated residual value of the processing mill at the end of Year 4 is $290,000.
This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.
Open spreadsheet
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 | $fill in the blank 2 | $fill in the blank 3 |
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Intermediate Accounting Volume 1
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy
12th Canadian edition
978-1119496496
