Keller Construction is considering two new investments. Project E calls for the

Question

Keller Construction is considering two new investments. Project E calls for the purchase of earth moving 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.

Determine the net present value of the projects based on a zero discount rate. (Omit the "$" sign in your response.)

Project E Project H ($41,000 investment) ($42,000 investment) Year Cash flow Year Cash flow 1 $ 11,000 1 $ 23,000 2 16,000 2 17,000 3 22,000 3 15,000 4 24,000

Explanation / Answer

(a)Determine the net present value of the projects based on a zero disc. Proj E : So NPV = CF0+Cf1+CF2+CF3+CF4 = -41000+11000+16000+22000+24000 = $32,000 Proj H: NPV = -42000+23000+17000+15000 = $13,000 b) Determine the net present value of the projects based on a 9 percent discount rate. Proj E : Initial Inv = 41000 NPV = NPV(Rate, CF1..Cf4) + CF0 = NPV(9%,11000,16000,22000,24000) - 41000 = $16,549 Proj H: Initial Inv = 42000 NPV = NPV(Rate, CF1..Cf3) + CF0 = NPV(9%,23000,17000,15000) - 42000 = $4,992

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