Determine which equipment should be favored

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Problem - Net present value-unequal lives

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 Flow

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%.

Reference no: EM132690497

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