Question
12. Keller Construction is considering two new investments. Project E calls for the purchase of earthmoving equipment. Project H represents an investment in a hydraulic
12.
| 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 Bfor an approximate answer but calculate your final answer using the formula and financial calculator methods. |
| Project E | Project H | |||||
| ($34,000 investment) | ($25,000 investment) | |||||
| Year | Cash Flow | Year | Cash Flow | |||
| 1 | $ 11,000 | 1 | $ 15,000 | |||
| 2 | 14,000 | 2 | 14,000 | |||
| 3 | 15,000 | 3 | 12,000 | |||
| 4 | 17,000 | |||||
| a. | Determine the net present value of the projects based on a zero percent discount rate. |
| Net Present Value | |
| 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.) |
| Net Present Value | |
| 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? | ||||||
|
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