Question

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 $710,000. The net cash flows estimated for the two proposals are as follows:

	Net Cash Flow
Year	Processing Mill		Electric Shovel
1	$311,000		$345,000
2	257,000		315,000
3	257,000		322,000
4	262,000		323,000
5	182,000
6	144,000
7	139,000
8	139,000

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

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 15%. If required, round to the nearest dollar.

	Processing Mill	Electric Shovel
Net present value	$	$

Answer 1