Check My won 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). b. Determine the net present value of the investment, assuming that the desired rate of return is 20%. Use the present value of an annuity of 1 table above. Round to the nearest dollar. If required, use the minus sgn to indicate a negative net present value. Present value of annual net cash lows Amount to be invested Net present value c. Should Briggs Excavation invest in the bulldozer, based on this analysis? No , because the bulldozer cost is more than the present value of the cash flows at the minimum desired rate of retum of 20%. 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 hours Fo dback 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. Cash inflows: Hours of operation Revenue per hour Revenue per year Cash outflows: Hours of operation 3,000 140 420,000 3.000 Fuel cost per hour Labor cost per hour Total fuel and labor costs per hour 30 Fuel and labor costs per year Maintenance costs per year Annual net cash flow 30,000 237,000 X Fcedbod Chock My Work 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). b. Determine the net present value ofthe investment, assuming that the desired rate of retum is 20%. 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. Present value of annual net cash flows Amount to be invested Net present value c. Should Briggs Excavation invest in the bulldozer, based on this analysis? No , because the bulldozer cost is more than V the present value of the cash flows at the minimum desired rate of return of 20%. Net Present Value M Brigas Excavation Company is planning an investment of $797,800 for a bulldozer. The bulldozer is expected to operate for 3,000 hours per year for 10 years, Customers will be charged $140 per hour for bulldozer work. The bulldozer operator costs $30 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $30,000. The bulldozer uses fuel that is expected to cost $39 per hour of bulldozer operation. Present Value of an Annuity of $1 at Compound Interest 20% 0.943 0.909 0.893 0.870 0.833 1.833 1.736 1.690 1.626 1.528 2.673 2.487 2.402 2.283 2.106 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.352 2.991 4.9174.355 4.111 3.784 3.326 5.582 4.88 4.564 4.1603.605 6.210 5.335 4.968 4.487 3.37 6.802 5.759 5.328 4.7724.031 7.360 6.145 5.650 5.019 4.192 Year 6% 1 0% 12% 15% 10 a. Determine the equal annual net cash flows from operating the bulldozer. Use a minus sign to indicate cash outflows. Briggs Excavation Annual Net Cash Flow Cash nf ows: Hours of operation Revenue per hour Revenue per year Cash outflows: Hours of operation 3.000 140 420.000 V 3,000 Fuel cost per hour 39
