Keller Construction is considering two 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 project. The investment and cash flow patterns are as follows: Project E ($45,000 investment) Project H ($40,000 investment) year cashflow year cashflow 1 $12,000 1 $21,000 2 15,000 2 18,000 3 18,000 3 12,000 4 25,000 A) Determine the net present value of the projects based on a 0% discount rate B) Determine the net present value of the projects based on a 13% discount rate C) The internal rate of return on project E is 13.25%, and the internal rate of return on project H is 16.30%. graph a net present value profile for the two investments (use a scale up to $8,000 on the vertical axis, with $2,000 increments. Use a scale up to 20% on the horizontal axis, with 5% increments)
Keller Construction is considering two 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 project. The investment and cash flow patterns are as follows: Project E ($45,000 investment) Project H ($40,000 investment) year cashflow year cashflow 1 $12,000 1 $21,000 2 15,000 2 18,000 3 18,000 3 12,000 4 25,000 A) Determine the net present value of the projects based on a 0% discount rate B) Determine the net present value of the projects based on a 13% discount rate C) The internal rate of return on project E is 13.25%, and the internal rate of return on project H is 16.30%. graph a net present value profile for the two investments (use a scale up to $8,000 on the vertical axis, with $2,000 increments. Use a scale up to 20% on the horizontal axis, with 5% increments)
Related questions
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.
| 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 | 22,000 | |||||
(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
| Question: | ||||
| The Sanders Electric Company is evaluating two projects for possible inclusion in the firmâs capital budget. Project M will require a $37,000 investment while project Oâs investment will be $46,000. After-tax cash inflows are estimated as follows for the two projects: | ||||
| Year | Project M | Project O | ||
| 1 | $12,000 | $10,000 | ||
| 2 | 12000 | 10000 | ||
| 3 | 12000 | 15000 | ||
| 4 | 12000 | 15000 | ||
| 5 | 15000 | |||
| a. | Determine the payback period for each project. | |||
| Payback (M) = | ||||
| Payback (O) = | ||||
| b. | Calculate the net present value and profitability index for each project based on a 10 percent cost of capital. Which, if either, of the project is acceptable? | |||
| NPV (M) = | ||||
| PI (M) = | ||||
| NPV (O) = | ||||
| PI (O) = | ||||
| c. | Determine the internal rate of return and modified internal rate of return for Projects M and O. | |||
| IRR (M): | ||||
| IRR (O): | ||||
| MIRR calculation of project M: | ||||
| MIRR calculation of project O: | ||||
