Year 1 2 3 4 5 6 7 8 9 10 Present Value of $1 at Compound Interest 6% 10% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 12% 15% 0.893 0.870 0.797 0.756 0.712 0.658 0.636 0.572 Check My Work 0.567 0.507 0.452 0.404 0.361 0.322 20% 0.833 0.694 0.579 0.482 0.497 0.402 0.432 0.335 0.376 0.279 0.327 0.284 0.247 Present value of net cash flow total Less amount to be invested Net present value Which project should be favored? Electric Shovel ✓ 0.162 Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 12%. Use the present value table appearing above. Processing Mill Electric Shovel 0.233 0.194 $ Previous

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.