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
($19,000 Investment)					($19,000 Investment)
Year	Cash Flow				Year	Cash Flow
1	$	4,000			1	$	15,000
2		5,000			2		4,000
3		6,000			3		3,000
4		13,000

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

Project E:

Project H:

b. Determine the net present value of the projects based on a discount rate of 10 percent. 
 

Project E:

Project H:

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