E & T Excavation Company is planning an investment of $1,007,500 for a bulldozer. The bulldozer is expected to operate for 3,000 hours per year for eight years. Customers will be charged $150 per hour for bulldozer work. The bulldozer operator costs $38 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 $50 per hour of bulldozer operation.

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.352	2.991
6	4.917	4.355	4.111	3.784	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

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

E and T Excavation Company
Equal Annual Net Cash Flow
Cash inflows:
Hours of operation
Revenue per hour		X $
Revenue per year			$
Cash outflows:
Hours of operation
Fuel cost per hour	$
Labor cost per hour
Total fuel and labor costs per hour		X $
Fuel and labor costs per year
Maintenance costs per year
Annual net cash flow			$

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).

Learning Objective 3.

b. Determine the net present value of the investment, assuming that the desired rate of return is 6%. 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	$
Less amount to be invested (THIS IS WHAT I NEED)	$
Net present value	$