Net Present Value MethodAnnuity

Briggs Excavation Company is planning an investment of $209,800 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for five years. Customers will be charged $125 per hour for bulldozer work. The bulldozer operator costs $27 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $10,000. The bulldozer uses fuel that is expected to cost $35 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	3.353	2.991
6	4.917	4.355	4.111	3.785	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 Company
Equal Annual Net Cash Flows
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 flows			$

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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	$
Amount to be invested	$
Net present value	$

c. Should Briggs Excavation invest in the bulldozer, based on this analysis? Yes , because the bulldozer cost is less than the present value of the cash flows at the minimum desired rate of return of 6%.

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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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.

I have completed section A but I am not sure what I am doing wrong in section B. Please include an explanation and how the problem was solved so I can carry this knowledge to other problems as well. And also for section D.

Thanks

I

Net Neth Annuly Briggs Excavation Coman is plannen. $209, 8ch for a budowl. The builder Sexted me ,co urs pay for TV 2. Oustomers will be charged $125 per houler kaze nurk. The bulevar per US $27 berlour in a cada clics. The u dus la pastorie anual man S10,000. The ballerzeuger hue that sexsected to cost $35 per hour of bulldozer operation Present Value of an Annulty of 81 at Compound Interest Year 10% 128. 155 2056 1 11,99 11.99 3.97 0839 : 528 2 1.833 1.739 1.52 1.52 1 2.1 7.251 4 3.465 3.937 3.170 "1.799 2.580 7991 1.712 1.5 1.31 5 4,017 4.355 4.11: 3.788 32E 5.5113 2.1 1.14 145 3 6.210 5.335 4.95 4.487 5.11.12 10 7.362 6.145 5.550 5.3.0 4.92 a. Determine the cquslarnua net cash Nons om opc acis tx buldoacr. Use a minus sign to indicate cash oums. Briggs Ereton Company Equal Annual Net Cash Flow Dadi Hount of ration LUL Revenue per hour $ 125,00 Ruryer Dede Hour of puration Pust pur hour 25 Labor cost per hour - Total fuel and labor costs per hour und aber soba pary Maintenance costs per year Annual nut sah flow - 21.00 13.000 Fw tes ...lily prylus Ico, mulle tuli rurke 13:18 from Chin Putral lovlarly r.). Learny Dom b. Determine the net rusent value of tre mestment, assuming that the desired rate or return is cs. Use the presenta e or anity or $1 table above. Round to the nearest colar. If reculreduse the minds sign bc Indicate regtve net prezent value Prerent value of a nu net cash Mos $ 200,774 Arunr. Le linnud 209,000 Net presentave -26 X 2. Shouk Briggs Excalcinha Luldiga, Lanchaya