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
($46,000 Investment)					($45,000 Investment)
Year	Cash Flow				Year	Cash Flow
1	$	9,000			1	$	24,000
2		13,000			2		18,000
3		23,000			3		14,000
4		30,000

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

Project H

b. Determine the net present value of the projects based on a discount rate of 12 percent. (Do not round intermediate calculations and round your answers to 2 decimal places.)

Project E

Project H

c. If the projects are not mutually exclusive, which project(s) would you accept if the discount rate is 12 percent?

• Project E

• Project H

• Both H and E

Answer 1