Keller Construction is considering two new investments. Project E calls for the
ID: 2628753 • Letter: K
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.
(a) Determine the net present value of the projects based on a zero discount rate. (Omit the "$" sign in your response.) Net present value Project E $ Project H $
(b) Determine the net present value of the projects based on a 11 percent discount rate. (Round "PV Factors" to 3 decimal places and final answer to the nearest dollar amount. Omit the "$" sign in your response.) Net present value Project E $ Project H $
(d) If the two projects are not mutually exclusive, what would your acceptance or rejection decision be if the cost of capital (discount rate) is 8 percent? (Use the net present value profile for your decision; no actual numbers are necessary.) Project E Project H Both H and E
Project E Project H ($40,000 investment) ($36,000 investment) Year Cash flow Year Cash flow 1 $ 9,000 1 $ 17,000 2 14,000 2 15,000 3 20,000 3 13,000 4 22,000Explanation / Answer
Answer to A) Project E Project H ($40000 investment) ($36000 investment) Year Cash flow Year Cash flow 0 -40000 -36000 1 9000 1 17000 2 14000 2 15000 3 20000 3 13000 4 22000 NPV 25000 NPV 9000 Answer to b) 11 11 Year Cash flow dcf @ 11% cash flow Year Cash flow dcf @ 11% 0 -40000 1 -40000 -36000 1 -36000 1 9000 0.901 8108.108 1 17000 0.901 15315.32 2 14000 0.812 11362.71 2 15000 0.812 12174.34 3 20000 0.731 14623.83 3 13000 0.731 9505.488 4 22000 0.659 14492.08 NPV 8586.731 NPV 995.1398 Answer to d) 8 8 Year Cash flow dcf @ 8% cash flow Year Cash flow dcf @ 8% 0 -40000 1 -40000 -36000 1 -36000 1 9000 0.926 8333.333 1 17000 0.926 15740.74 2 14000 0.857 12002.74 2 15000 0.857 12860.08 3 20000 0.794 15876.64 3 13000 0.794 10319.82 4 22000 0.735 16170.66 NPV 12383.38 NPV 2920.642 accept both projects
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