Net Present Value Method—AnnuityJones Excavation Company is planning an investment of $125,000 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for five years. Customers will be charged $90 per hour for bulldozer work. The bulldozer operator costs $30 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $7,500. The bulldozer uses fuel that is expected to cost $15 per hour of bulldozer operation.Present Value of an Annuity of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83321.8331.7361.6901.6261.52832.6732.4872.4022.2832.10643.4653.1703.0372.8552.58954.2123.7913.6053.3532.99164.9174.3554.1113.7853.32675.5824.8684.5644.1603.60586.2105.3354.9684.4873.83796.8025.7595.3284.7724.031107.3606.1455.6505.0194.192a. 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 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 Feedbackb. Determine the net present value of the investment, assuming that the desired rate of return is 10%. Use the table of present value of an annuity of $1 table above. Round to the nearest dollar.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 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._______ hours Cash outflovs:Hours of operation v1,000Fuel cost per hour15Labor cost per hour v30 VTotal fuel and labor costs per hour v45Fuel and labor costs per year v45,000Maintenance costs per year v7,500 VAnnual net cash flows v37,500Feedbackb. Determine the net present value of the investment, assuming that the desired rate of return is 10%. Use the table of present value of an annuity of $1 table above. Round to the nearest dollar.Present value of annual net cash flows142,163Amount to be invested125,000Net present value17,163 Vc. Should Jones invest in the bulldozer, based on this analysis?Yes v , because the bulldozer cost is less than v the 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.hours Net Present Value Method-AnnuityJones Excavation Company is planning an investment of $125,000 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for five years. Customers will be charged $90 per hour for bulldozer work. The bulldozer operator costs $30per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $7,500. The bulldozer uses fuel that is expected to cost $15 per hour of bulldozer operation.Present Value of an Annuity of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83321.8331.7361.6901.6261.52832.6732.4872.4022.2832.10643.4653.1703.0372.8552.58954.2123.7913.6053.3532.99164.9174.3554.1113.7853.3265.5824.8684.5644.1603.6056.2105.3354.9684.4873.83796.8025.7595.3284.7724.031107.3606.1455.6505.0194.192a. Determine the equal annual net cash flows from operating the bulldozer.Jones Excavation CompanyEqual Annual Net Cash FlowsCash inflovs:Hours of operation v1,000Revenue per hour v90 VRevenue per year v90,000Cash outflows:Hours of operation v1.000

Since, the answer is already mentioned in part a, b and c. Therefore, I will provide the solution…

Answered: Determine the number of operating hours…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Net Present Value Method—Annuity

Jones Excavation Company is planning an investment of $125,000 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for five years. Customers will be charged $90 per hour for bulldozer work. The bulldozer operator costs $30 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $7,500. The bulldozer uses fuel that is expected to cost $15 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

Cash inflows:
Hours of operation
Revenue per hour
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

Feedback

b. Determine the net present value of the investment, assuming that the desired rate of return is 10%. Use the table of present value of an annuity of $1 table above. Round to the nearest dollar.

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 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.
_______ hours

Cash outflovs:
Hours of operation v
1,000
Fuel cost per hour
15
Labor cost per hour v
30 V
Total fuel and labor costs per hour v
45
Fuel and labor costs per year v
45,000
Maintenance costs per year v
7,500 V
Annual net cash flows v
37,500
Feedback
b. Determine the net present value of the investment, assuming that the desired rate of return is 10%. Use the table of present value of an annuity of $1 table above. Round to the nearest dollar.
Present value of annual net cash flows
142,163
Amount to be invested
125,000
Net present value
17,163 V
c. Should Jones invest in the bulldozer, based on this analysis?
Yes v , because the bulldozer cost is less than v the 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.
hours

Net Present Value Method-Annuity
Jones Excavation Company is planning an investment of $125,000 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for five years. Customers will be charged $90 per hour for bulldozer work. The bulldozer operator costs $30
per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $7,500. The bulldozer uses fuel that is expected to cost $15 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
5.582
4.868
4.564
4.160
3.605
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
Cash inflovs:
Hours of operation v
1,000
Revenue per hour v
90 V
Revenue per year v
90,000
Cash outflows:
Hours of operation v
1.000

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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