Question

Keller Construction is considering two new investments. Project E calls for the purchase of earthmoving equipment. Project H represents an investment in a hydraulic lift. Keller wishes to use a net present value profile in comparing the projects. The investment and cash flow patterns are as follows: Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Project E					Project H
($49,000 Investment)					($46,000 Investment)
Year	Cash Flow				Year	Cash Flow
1	$	11,000			1	$	25,000
2		15,000			2		18,000
3		25,000			3		16,000
4		32,000

a. Determine the net present value of the projects based on a zero percent discount rate.

b. Determine the net present value of the projects based on a discount rate of 9 percent. (Do not round intermediate calculations and round your answers to 2 decimal places.)

c. If the projects are not mutually exclusive, which project(s) would you accept if the discount rate is 9 percent?

• Project E

• Project H

• Both H and E

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