eBook Net Present Value—Unequal Lives Mulkey Development Company has two competing projects: an electric shovel and a processing mill. Both projects have an initial investment of $505,445. The net cash flows estimated for the two projects are as follows: Net Cash Flow Year Electric Shovel Processing Mill 1 $172,000 $224,000 2 153,000 200,000 3 153,000 184,000 4 122,000 189,000 5 93,000 6 77,000 7 67,000 8 67,000 The estimated residual value of the electric shovel at the end of Year 4 is $220,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Compare the net present values of the two projects and assume a minimum rate of return of 15%. Use the present value table appearing above. Electric Shovel Processing Mill Total present value of net cash flow $fill in the blank 1 $fill in the blank 2 Less amount to be invested fill in the blank 3 fill in the blank 4 Net present value $fill in the blank 5 $fill in the blank 6

eBook Net Present Value—Unequal Lives Mulkey Development Company has two competing projects: an electric shovel and a processing mill. Both projects have an initial investment of $505,445. The net...

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Net Present Value—Unequal Lives

Mulkey Development Company has two competing projects: an electric shovel and a processing mill. Both projects have an initial investment of $505,445. The net cash flows estimated for the two projects are as follows:

	Net Cash Flow
Year	Electric Shovel	Processing Mill
1	$172,000		$224,000
2	153,000		200,000
3	153,000		184,000
4	122,000		189,000
5	93,000
6	77,000
7	67,000
8	67,000

The estimated residual value of the electric shovel at the end of Year 4 is $220,000.

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	0.567	0.497	0.402
6	0.705	0.564	0.507	0.432	0.335
7	0.665	0.513	0.452	0.376	0.279
8	0.627	0.467	0.404	0.327	0.233
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

Compare the net present values of the two projects and assume a minimum rate of return of 15%. Use the present value table appearing above.

	Electric Shovel	Processing Mill
Total present value of net cash flow	$fill in the blank 1	$fill in the blank 2
Less amount to be invested	fill in the blank 3	fill in the blank 4
Net present value	$fill in the blank 5	$fill in the blank 6

Jun 03, 2022

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