Keller Construction is considering two new investments. Project E calls for the purchase of earthmoving equipment. Project
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 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
($50,000 Investment) ($42,000 Investment)
Year Cash Flow Year Cash Flow
1 $ 14,000 1 $ 23,000
2 17,000 2 17,000
3 22,000 3 13,000
4 29,000
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 13 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 13 percent?
Project E
Project H
Both H and E