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 $695,302. The net cash flows estimated for the two proposals are as follows:
|Net Cash Flow|
|Year||Processing Mill||Electric Shovel|
The estimated residual value of the processing mill at the end of Year 4 is $280,000.
|Present Value of $1 at Compound Interest|
Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 12%. Use the present value table appearing above.
|Processing Mill||Electric Shovel|
|Present value of net cash flow total||$||$|
|Less amount to be invested|
|Net present value||$||$|
Which project should be favored?
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