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 | |||||||
| ($23,000 Investment) | ($25,000 Investment) | |||||||
| Year | Cash Flow | Year | Cash Flow | |||||
| 1 | $ | 7,000 | 1 | $ | 19,000 | |||
| 2 | 10,000 | 2 | 10,000 | |||||
| 3 | 11,000 | 3 | 9,000 | |||||
| 4 | 14,000 | |||||||
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
