Question Content Area 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 $802,739. The net cash flows estimated for the two proposals are as follows:

Net Cash Flow Year Processing Mill Electric Shovel 1 $256,000 $320,000 2 228,000 297,000 3 228,000 274,000 4 182,000 282,000 5 138,000 6 115,000 7 100,000 8 100,000 The estimated residual value of the processing mill at the end of Year 4 is $320,000.

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 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 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 $fill in the blank 1 $fill in the blank 2 Less amount to be invested $fill in the blank 3 $fill in the blank 4 Net present value $fill in the blank 5 $fill in the blank 6 Which project should be favored?