Net Present Value MethodAnnuity

Jones Excavation Company is planning an investment of $749,400 for a bulldozer. The bulldozer is expected to operate for 3,000 hours per year for eight years. Customers will be charged $130 per hour for bulldozer work. The bulldozer operator costs $25 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 $33 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

Question Content Area

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

blank Jones Excavation Company Equal Annual Net Cash Flows

Cash inflows:
Fuel and labor costs per yearHours of operationMaintenance costs per yearTotal fuel and labor costs per hour		- Select -
Fuel and labor costs per yearFuel cost per hourLabor cost per hourRevenue per hour		$- Select -
Fuel and labor costs per yearFuel cost per hourLabor cost per hourRevenue per year			$- Select -
Cash outflows:
Fuel and labor costs per yearHours of operationMaintenance costs per yearTotal fuel and labor costs per hour		- Select -
Annual net cash flowsFuel cost per hourRevenue per hourRevenue per year	$- Select -
Annual net cash flowsLabor cost per hourRevenue per hourRevenue per year	- Select -
Annual net cash flowsRevenue per hourRevenue per yearTotal fuel and labor costs per hour		$- Select -
Annual net cash flowsFuel and labor costs per yearRevenue per hourRevenue per year			- Select -
Annual net cash flowsMaintenance costs per yearRevenue per hourRevenue per year			- Select -
Annual net cash flowsHours of operationRevenue per hourRevenue per year			$- Select -

Question Content Area

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 sign to indicate a negative net present value.

Present value of annual net cash flows	$fill in the blank dec137fdefc1005_1
Amount to be invested	fill in the blank dec137fdefc1005_2
Net present value	$fill in the blank dec137fdefc1005_3

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

YesNo

, because the bulldozer cost is

less thanmore than

the present value of the cash flows at the minimum desired rate of return 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. fill in the blank dec137fdefc1005_6 hours