Capital Investment Analysis; Jones Excavation Company is planning an investment of $190,800 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for five years. Customers will be charged $140 per hour for bulldozer work. The bulldozer operator costs $33 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 $43 per hour of bulldozer operation.
Capital Investment Analysis; Jones Excavation Company is planning an investment of $190,800 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for five years. Customers will be charged $140 per hour for bulldozer work. The bulldozer operator costs $33 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 $43 per hour of bulldozer operation.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Capital Investment Analysis; Jones Excavation Company is planning an investment of $190,800 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for five years. Customers will be charged $140 per hour for bulldozer work. The bulldozer operator costs $33 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 $43 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 |
Transcribed Image Text:a. Determine the equal annual net cash flows from operating the bulldozer.
Jones Excavation Company
Equal Annual Net Cash Flows
Cash inflows:
Hours of operation
Revenue per hour V
Revenue per year
Cash outflows:
Hours of operation
Fuel cost per hour
Labor cost per hour
Total fuel and labor costs per hour
Fuel and labor costs per year
Maintenance costs per year
Annual net cash flows v
$
Transcribed Image Text: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
$
Amount to be invested
Net present value
$
c. Should Jones 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 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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