gold creek mining company has two competing proposals: a processing mill and an electric shovel. both pieces of equipment have an initial investment of $840,000. The net cash flows estimated for the two proposals are as follows:
………………………………..NET CASH FLOWS………………………..
Year…………….Processing Mill……………..Electric Shovel
1………………….$280,000…………………….$350,000
2………………….250,000……………………….325,000
3………………….250,000……………………….300,000
4………………….200,000……………………….300,000
5………………….150,000
6………………….125,000
7………………….100,000
8………………….100,000
The estimated residual value of the processing mill at the end of Year 4 is $350,000.
Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of %15.
Use the present value tables below
