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 | |||||||
| ($22,000 Investment) | ($21,000 Investment) | |||||||
| Year | Cash Flow | Year | Cash Flow | |||||
| 1 | $ | 6,000 | 1 | $ | 15,000 | |||
| 2 | 7,000 | 2 | 6,000 | |||||
| 3 | 8,000 | 3 | 5,000 | |||||
| 4 | 11,000 | |||||||
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 10 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 10
percent?
-
Project E
-
Project H
-
Both H and E
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