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
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