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:
