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
($37,000 Investment)					($35,000 Investment)
Year	Cash Flow				Year	Cash Flow
1	$	9,000			1	$	17,000
2		12,000			2		18,000
3		18,000			3		17,000
4		20,000

a. Determine the net present value of the projects based on a zero percent discount rate.

	NPV
Project E
Project H

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.)

	NPV
Project E
Project H

c. If the projects are not mutually exclusive, which project(s) would you accept if the discount rate is 9 percent?

Answer 1

A B H a) year 0 C D E G discount Project E rate 0% value Project H value - 37000 1 - 37000 - 35000 35000 9000 1 9000 17000 17000 12000 1 12000 18000 18000 18000 18000 17000 17000 20000 20000 1 2 3 4 net presetn value 22,000.00 17,000.00 year discount Project E rate 9% value Project H value ol -37000 1 - 37000 - 35000 35000 9000 0.917431 8256.881 17000 15596.33 2 12000 0.84168 10100.16 18000 15150.24 3 18000 0.772183 13899.3 17000 13127.12 4 20000 0.708425 14168.5 net present value 9,424.85 8,873.69 MIRR 15% MIRR 18% 23 the proejects are not mutually exclusive, then both projects can be accpeted 24 as boh have positive net present value and higher mirr rate than discount rate 9%

discount Project E rate 0% -37000 1 9000 =+D2/1 12000 =+D3/1 18000 =+D4/1 20000 =+D5/1 value =+C2D2 =+C3D3 =+C4D4 =+C56D5 =+C6*D6 Project H value -35000 =+F2 D2 17000 =+F3 D3 18000 =+F46D4 17000 =+F56D5 net presetn value =SUM(E2:E7) =SUM(G2:G7) 12 b) year discount Project E rate 9% -370001 9000 =+D13/1.09 12000 =D14/1.09 18000 =+D15/1.09 20000 =+D16/1.09 value =+C13D13 =+C14D14 =+C15D15 =+C16*D16 =+C17*D17 Project H value -35000 =+F13D13 17000 =+F14*D14 18000 =+F15*D15 =+F16*D16 net present value =SUM(E13:E18) =SUM(G13:18) MIRR MIRR(C13:C17,9%,9%) MIRR EMIRR(F13:F16,9%,9%) 23 c. if the 24 as boh

PLEase ask if any query.