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 ($24,000 Investment) ($24,000 Investment) Year Cash Flow Year Cash Flow 1 $ 6,000 1 $ 17,000 2 8,000 2 6,000 3 9,000 3 5,000 4 12,000
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 9 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 9 percent?