Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $176,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $44,000. The company's minimum desired rate of return for net present value analysis is 12%. 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 Compute the following: a. The average rate of return, giving effect to straight-line depreciation on the investment. If required, round your answer to one decimal place 15 X % b. The cash payback period. 4 years Ilco thoahovo table Du dollar Treuired Net Present Value Method-Annuity Jones Excavation Company is planning an investment of $223,100 for a bulldozer. The bulldozer is expected to operate for 3,000 hours per year for eight years. Customers will be charged $110 per hour for bulldozer work. The bulldozer operator costs $35 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 $46 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. Jones Excavation Company Equal Annual Net Cash Flows Feedback Check 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 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 $ 218,709 Amount to be invested 223,100 Net present value -4,391 c. Should Jones 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 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. 3,039 X hours Feedback Check My Work b. Multiply the annual net cash flow by the present value of an annuity factor and subtract the amount to be invested. s. Which is more favorable