Briggs Excavation Company is planning an investment of $228,600 for a bulldozer. The bulldozer is expected to operate for 2,000 hours per year for six years. Customers will be charged $120 per hour for bulldozer work. The bulldozer operator costs $37 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $20,000. The bulldozer uses fuel that is expected to cost $48 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 CompanyEqual Annual Net Cash Flows Briggs Excavation Company Equal Annual Net Cash Flows Cash inflows: Hours of operation X $Revenue per hour $Revenue per yearCash outflows: Hours of operation $Fuel cost per hour Labor cost per hour X $Total fuel and labor costs per hour Fuel and labor costs per year Maintenance costs per year $Annual net cash flows b. Determine the net present value of the investment, assuming that the desired rate of return is 10%. 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 c6c603fb702bf96_1 Amount to be invested $fill in the blank c6c603fb702bf96_2 Net present value $fill in the blank c6c603fb702bf96_3 c. Should Briggs Excavation invest in the bulldozer, based on this analysis? , because the bulldozer cost is the present value of the cash flows at the minimum desired rate of return of 10%.
Briggs Excavation Company is planning an investment of $228,600 for a bulldozer. The bulldozer is expected to operate for 2,000 hours per year for six years. Customers will be charged $120 per hour for bulldozer work. The bulldozer operator costs $37 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $20,000. The bulldozer uses fuel that is expected to cost $48 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 CompanyEqual Annual Net Cash Flows Briggs Excavation Company Equal Annual Net Cash Flows Cash inflows: Hours of operation X $Revenue per hour $Revenue per yearCash outflows: Hours of operation $Fuel cost per hour Labor cost per hour X $Total fuel and labor costs per hour Fuel and labor costs per year Maintenance costs per year $Annual net cash flows b. Determine the net present value of the investment, assuming that the desired rate of return is 10%. 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 c6c603fb702bf96_1 Amount to be invested $fill in the blank c6c603fb702bf96_2 Net present value $fill in the blank c6c603fb702bf96_3 c. Should Briggs Excavation invest in the bulldozer, based on this analysis? , because the bulldozer cost is the present value of the cash flows at the minimum desired rate of return of 10%.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Net Present Value Method—AnnuityBriggs Excavation Company is planning an investment of $228,600 for a bulldozer. The bulldozer is expected to operate for 2,000 hours per year for six years. Customers will be charged $120 per hour for bulldozer work. The bulldozer operator costs $37 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $20,000. The bulldozer uses fuel that is expected to cost $48 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 Briggs Excavation CompanyEqual Annual Net Cash Flowsa. Determine the equal annual net
cash flows from operating the bulldozer. Use a minus sign to indicatecash outflows.
Briggs Excavation Company
Equal Annual Net Cash FlowsCash inflows: Hours of operationX $Revenue per hour$Revenue per yearCash outflows:Hours of operation$Fuel cost per hourLabor cost per hourX $Total fuel and labor costs per hourFuel and labor costs per yearMaintenance costs per year$Annual net cash flowsb. Determine the net present value of the investment, assuming that the desired
rate of return is 10%. 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 c6c603fb702bf96_1 Amount to be invested $fill in the blank c6c603fb702bf96_2 Net present value $fill in the blank c6c603fb702bf96_3 c. Should Briggs Excavation invest in the bulldozer, based on this analysis?
, because the bulldozer cost isthe present value of the cash flows at the minimum desired rate of return of 10%.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 c6c603fb702bf96_6 hours
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