Determine which equipment should be favored

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Problem - Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $750,000. The net cash flows estimated for the two proposals are as follows:


Net Cash Flow

Year

Processing Mill

Electric Shovel

1

$310,000

$330,000

2

260,000

325,000

3

260,000

325,000

4

260,000

320,000

5

180,000


6

130,000


7

120,000


8

120,000


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

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: EM132772332

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