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Net Present ValueUnequal Lives

Mulkey Development Company has two competing projects: an electric shovel and a processing mill. Both projects have an initial investment of $888,539. The net cash flows estimated for the two projects are as follows:

	Net Cash Flow
Year	Electric Shovel	Processing Mill
1	$270,000				$351,000
2	240,000				313,000
3	240,000				289,000
4	192,000				297,000
5	146,000
6	122,000
7	105,000
8	105,000

The estimated residual value of the electric shovel at the end of Year 4 is $340,000.

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 10%. 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

Which project should be favored?

Electric ShovelProcessing MillProcessing Mill