Net present value method $$annuity

Jones Excavation Company is planning an investment of $$318,400$ for a bulldozer. The bulldozer is expected to operate for $2,000$ hours per year for $5$ years. Customers will be charged $$135$ per hour for bulldozer work. The bulldozer operator costs $$37$ per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $$20,000.$ The bulldozer uses fuel that is expected to cost $$48$ per hour of bulldozer operation.

Present Value of an Annuity of $$1$ at Compound Interest

Year $6\%10\%12\%15\%20\%$

$10\mathrm{.}9430\mathrm{.}9090\mathrm{.}8930\mathrm{.}8700\mathrm{.}833$

$21\mathrm{.}8331\mathrm{.}7361\mathrm{.}6901\mathrm{.}6261\mathrm{.}528$

$32\mathrm{.}6732\mathrm{.}4872\mathrm{.}4022\mathrm{.}2832\mathrm{.}106$

$43\mathrm{.}4653\mathrm{.}1703\mathrm{.}0372\mathrm{.}8552\mathrm{.}589$

$54\mathrm{.}2123\mathrm{.}7913\mathrm{.}6053\mathrm{.}3532\mathrm{.}991$

$64\mathrm{.}9174\mathrm{.}3554\mathrm{.}1113\mathrm{.}7853\mathrm{.}326$

$75\mathrm{.}5824\mathrm{.}8684\mathrm{.}5644\mathrm{.}1603\mathrm{.}605$

$86\mathrm{.}2105\mathrm{.}3354\mathrm{.}9684\mathrm{.}4873\mathrm{.}837$

$96\mathrm{.}8025\mathrm{.}7595\mathrm{.}3284\mathrm{.}7724\mathrm{.}031$

$107\mathrm{.}3606\mathrm{.}1455\mathrm{.}6505\mathrm{.}0194\mathrm{.}192$

Question Content Area

a$.$ Determine the equal annual net cash flows from operating the bulldozer.

blank

Jones Excavation Company

Equal Annual Net Cash Flows

Line Item Description Amount Amount Amount

Cash inflows:

Hours of operation

$\backslash$times $Revenue per hour

$Revenue per year

Cash outflows:

Hours of operation

$Fuel cost per hour

Labor cost per hour

$\backslash$times $Total fuel and labor costs per hour

Fuel and labor costs per year

Maintenance costs per year

$Annual net cash flows

Feedback Area

Feedback

a$.$ Subtract the operating expenses $($hourly fuel and labor costs, multiplied by the operating hours, plus the annual maintenance costs$)$ from the revenues $($operating hours multiplied by the hourly revenue$).$

Question Content Area

b$.$ Determine the net present value of the investment, assuming that the desired rate of return is $10\%.$ Use the present value of an annuity of $$1$ table above. Round to the nearest dollar. If required, use the minus sign to indicate a negative net present value.

Line Item Description Amount

Present value of annual net cash flows fill in the blank $1$ of $4$$

Amount to be invested fill in the blank $2$ of $4$

Net present value fill in the blank $3$ of $4$$

c$.$ Should Jones invest in the bulldozer, based on this analysis?

$,$ because the bulldozer cost is

the present value of the cash flows at the minimum desired rate of return of $10\%.$

d$.$ Determine the number of operating hours such that the present value of cash flows equals the amount to be invested. Round interim calculations and final answer to the nearest whole number.

fill in the blank $4$ of $4$ hours

Feedback Area

Feedback

b$.$ Multiply the annual net cash flow by the present value of an annuity factor and subtract the amount to be invested.

c$.$ Which is more favorable?

d$.$ Set up an equation to solve for hours.

Feedback Area

Feedback

Partially correct