Question: 9. Keller Construction is considering two new investments. Project E calls for the purchase of earthmoving equipment. Project H represents an investment in a hydraulic
9. 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 | ||||||
| ($49,000 Investment) |
| ($46,000 Investment) | ||||||
| Year | Cash Flow |
| Year | Cash Flow | ||||
| 1 | $ | 11,000 |
|
| 1 | $ | 25,000 |
|
| 2 |
| 15,000 |
|
| 2 |
| 18,000 |
|
| 3 |
| 25,000 |
|
| 3 |
| 16,000 |
|
| 4 |
| 32,000 |
|
|
|
|
|
|
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?
multiple choice
Project E
Project H
Both H and E
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