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 FLOWS........................

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.

Use the present value tables below

Present Value of $1 at Compound Interest 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 Year 696 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 10 Present Value of an Annuity of $1 at Compound Interest 6% 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 1596 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 Year 1096 20% 12% 0.893 1.690 2.402 3.037 3.605 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 4.564 4968 5.328 5.650 10