Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel

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%. Use the present value tables presented in this chapter (Exhibits 1 and 2).

Answer: