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 B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Project E | Project H | |||||||
($54,000 Investment) | ($48,000 Investment) | |||||||
Year | Cash Flow | Year | Cash Flow | |||||
1 | $ | 12,000 | 1 | $ | 24,000 | |||
2 | 16,000 | 2 | 17,000 | |||||
3 | 26,000 | 3 | 18,000 | |||||
4 | 33,000 | |||||||
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 11 percent
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