# Net Present Value—Unequal LivesBunker 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 FlowYear     Processing Mill     Electric Shovel1\$221,000         \$276,000         2197,000         256,000         3197,000         236,000         4157,000         243,000         5119,000           699,000           786,000           886,000           The estimated residual value of the processing mill at the end of Year 4 is \$280,000.Present Value of \$1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83320.8900.8260.7970.7560.69430.8400.7510.7120.6580.57940.7920.6830.6360.5720.48250.7470.6210.5670.4970.40260.7050.5640.5070.4320.33570.6650.5130.4520.3760.27980.6270.4670.4040.3270.23390.5920.4240.3610.2840.194100.5580.3860.3220.2470.162Determine 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 MillElectric ShovelPresent value of net cash flow total\$\$Less amount to be invested  Net present value\$\$Which project should be favored?  Electric ShovelProcessing MillNeither because they are equal

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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 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 1 \$221,000 \$276,000 2 197,000 256,000 3 197,000 236,000 4 157,000 243,000 5 119,000 6 99,000 7 86,000 8 86,000

The estimated residual value of the processing mill at the end of Year 4 is \$280,000.

 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 \$ \$ Less amount to be invested Net present value \$ \$

Which project should be favored?

• Electric Shovel
• Processing Mill
• Neither because they are equal

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