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 ($35,000 Investment) ($37,000 Investment) Year Cash Flow Year Cash Flow 1 $ 8,000 1 $ 19,000 2 13,000 2 16,000 3 19,000 3 15,000 4 21,000 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 13 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 13 percent? Project E Project H Both H and E

Answer 1