Question
Net Present Value MethodAnnuity Briggs Excavation Company is planning an investment of $265,800 for a bulldozer. The bulldozer is expected to operate for 4,000 hours
Net Present Value MethodAnnuity
Briggs Excavation Company is planning an investment of $265,800 for a bulldozer. The bulldozer is expected to operate for 4,000 hours per year for 10 years. Customers will be charged $110 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 $40,000. 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. Use a minus sign to indicate cash outflows.
Briggs Excavation | |||
Equal Annual Net Cash Flow | |||
Cash inflows: | |||
fill in the blank 1f1a9cfe0fcd000_2 | |||
$fill in the blank 1f1a9cfe0fcd000_4 | |||
$fill in the blank 1f1a9cfe0fcd000_6 | |||
Cash outflows: | |||
fill in the blank 1f1a9cfe0fcd000_8 | |||
$fill in the blank 1f1a9cfe0fcd000_10 | |||
fill in the blank 1f1a9cfe0fcd000_12 | |||
$fill in the blank 1f1a9cfe0fcd000_14 | |||
fill in the blank 1f1a9cfe0fcd000_16 | |||
fill in the blank 1f1a9cfe0fcd000_18 | |||
$fill in the blank 1f1a9cfe0fcd000_20 |
b. Determine the net present value of the investment, assuming that the desired rate of return is 12%. 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 | $fill in the blank 6d02d7064ffcfef_1 |
Amount to be invested | $fill in the blank 6d02d7064ffcfef_2 |
Net present value | $fill in the blank 6d02d7064ffcfef_3 |
c. Should Briggs Excavation invest in the bulldozer, based on this analysis? ............(yes/no) , because the bulldozer cost is...........(less than/more than) the present value of the cash flows at the minimum desired rate of return of 12%.
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)
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