Net Present Value Method—Annuity Briggs Excavation Company is planning an investment of $567,200 for a bulldozer. The bulldozer is expected to operate for 3,000 hours per year for eight years. Customers will be charged $120 per hour for bulldozer work. The bulldozer operator costs $29 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 $38 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 Company Equal Annual Net Cash Flows Cash inflows: fill in the blank ad23f0039ff4f94_2 X $fill in the blank ad23f0039ff4f94_4 $fill in the blank ad23f0039ff4f94_6 Cash outflows: fill in the blank ad23f0039ff4f94_8 $fill in the blank ad23f0039ff4f94_10 fill in the blank ad23f0039ff4f94_12 X $fill in the blank ad23f0039ff4f94_14 fill in the blank ad23f0039ff4f94_16 fill in the blank ad23f0039ff4f94_18 $fill in the blank ad23f0039ff4f94_20 b. Determine the net present value of the investment, assuming that the desired rate of return is 15%. 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 b63aca091fd3fcb_1 Amount to be invested $fill in the blank b63aca091fd3fcb_2 Net present value $fill in the blank b63aca091fd3fcb_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 15%.

Net Present Value Method—Annuity Briggs Excavation Company is planning an investment of $567,200 for a bulldozer. The bulldozer is expected to operate for 3,000 hours per year for eight years. Customers will be charged $120 per hour for bulldozer work. The bulldozer operator costs $29 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 $38 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 Company Equal Annual Net Cash Flows Cash inflows: fill in the blank ad23f0039ff4f94_2 X $fill in the blank ad23f0039ff4f94_4 $fill in the blank ad23f0039ff4f94_6 Cash outflows: fill in the blank ad23f0039ff4f94_8 $fill in the blank ad23f0039ff4f94_10 fill in the blank ad23f0039ff4f94_12 X $fill in the blank ad23f0039ff4f94_14 fill in the blank ad23f0039ff4f94_16 fill in the blank ad23f0039ff4f94_18 $fill in the blank ad23f0039ff4f94_20 b. Determine the net present value of the investment, assuming that the desired rate of return is 15%. 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 b63aca091fd3fcb_1 Amount to be invested $fill in the blank b63aca091fd3fcb_2 Net present value $fill in the blank b63aca091fd3fcb_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 15%.

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

Briggs Excavation Company is planning an investment of $567,200 for a bulldozer. The bulldozer is expected to operate for 3,000 hours per year for eight years. Customers will be charged $120 per hour for bulldozer work. The bulldozer operator costs $29 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 $38 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 Company
Equal Annual Net Cash Flows
Cash inflows:
		fill in the blank ad23f0039ff4f94_2
		X $fill in the blank ad23f0039ff4f94_4
			$fill in the blank ad23f0039ff4f94_6
Cash outflows:
		fill in the blank ad23f0039ff4f94_8
	$fill in the blank ad23f0039ff4f94_10
	fill in the blank ad23f0039ff4f94_12
		X $fill in the blank ad23f0039ff4f94_14
			fill in the blank ad23f0039ff4f94_16
			fill in the blank ad23f0039ff4f94_18
			$fill in the blank ad23f0039ff4f94_20

b. Determine the net present value of the investment, assuming that the desired rate of return is 15%. 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 b63aca091fd3fcb_1
Amount to be invested	$fill in the blank b63aca091fd3fcb_2
Net present value	$fill in the blank b63aca091fd3fcb_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 15%.

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 b63aca091fd3fcb_6 hours

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