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 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 | |||||
| ($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. |
| Net Present Value | |
| Project E | $ |
| Project H | $ |
| 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.) |
| Net Present Value | |
| Project E | $ |
| Project H | $ |
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A First Course in Quantitative Finance
Authors: Thomas Mazzoni
1st edition
9781108411431, 978-1108419574
