Question

# Keller Construction is considering two new investments. Project E calls for the purchase of earthmoving equipment....

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 (\$41,000 Investment) (\$42,000 Investment) Year Cash Flow Year Cash Flow 1 \$ 11,000 1 \$ 23,000 2 16,000 2 17,000 3 22,000 3 15,000 4 24,000

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 9 percent. (Do not round intermediate calculations and round your answers to 2 decimal places.)

Project E _________

Project H ________

a.

E:

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=11000+16000+22000+24000

=\$73000

NPV=Present value of inflows-Present value of outflows

=\$73000-\$41000

=\$32000

H:

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=23000+17000+15000

=\$55000

NPV=Present value of inflows-Present value of outflows

=\$55000-\$42000

=\$13000

b.

E:

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=11000/1.09+16000/1.09^2+22000/1.09^3+24000/1.09^4

=\$57548.86

NPV=Present value of inflows-Present value of outflows

=\$57548.86-\$41000

=\$16548.86(Approx).

H:

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=23000/1.09+17000/1.09^2+15000/1.09^3

=\$46992.23

NPV=Present value of inflows-Present value of outflows

=\$46992.23-\$42000

=\$4992.23(Approx).

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