Question

E & T Excavation Company is planning an investment of $177,100 for a bulldozer. The bulldozer...

E & T Excavation Company is planning an investment of $177,100 for a bulldozer. The bulldozer is expected to operate for 3,000 hours per year for 10 years. Customers will be charged $110 per hour for bulldozer work. The bulldozer operator costs $38 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 $50 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 3.352 2.991
6 4.917 4.355 4.111 3.784 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.

E and T Excavation Company
Equal Annual Net Cash Flow
Cash inflows:
X $
$
Cash outflows:
$
X $
$

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 $
Less amount to be invested $
Net present value $

c. Should E & T invest in the bulldozer, based on this analysis?

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

Homework Answers

Answer #1

a.

cash inflows:
Hours of operation 3000
Revenue per hour 110
Revenue per year $330000
Cash outflows:
Hours of operation 3000
Fuel cost per hour 50
Labor cost per hour 38
Total fuel and labor cost per hour 88
Fuel and labor cost per year 264000
Maintenance cost per year 30000
Annual net cash flow $36000

b.

Present value of annual net cash flows

$36000*5.019 = $180684

Less: Amount to be invested

$177100

Net present value

$3584

c.  E & T should invest in the bulldozer because it has positive Net present value.

d. Number of operating hours = 177100/5.019 = 35286 hours

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Jones Excavation Company is planning an investment of $122,300 for a bulldozer. The bulldozer is expected...
Jones Excavation Company is planning an investment of $122,300 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for six years. Customers will be charged $110 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 $10,000. The bulldozer uses fuel that is expected to cost $39 per hour of bulldozer operation. Present Value of an Annuity of $1 at...
Net Present Value Method—Annuity Briggs Excavation Company is planning an investment of $65,200 for a bulldozer....
Net Present Value Method—Annuity Briggs Excavation Company is planning an investment of $65,200 for a bulldozer. The bulldozer is expected to operate for 2,000 hours per year for six years. Customers will be charged $105 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...
A project is estimated to cost $191,850 and provide annual net cash flows of $50,000 for...
A project is estimated to cost $191,850 and provide annual net cash flows of $50,000 for eight years. 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 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968...
A project is estimated to cost $454,730 and provide annual net cash flows of $74,000 for...
A project is estimated to cost $454,730 and provide annual net cash flows of $74,000 for 10 years. 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 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968...
Connor Company is considering the purchase of new equipment for $125,000. The expected life of the...
Connor Company is considering the purchase of new equipment for $125,000. The expected life of the equipment is 5 years with no residual value. The equipment is expected to earn revenues of $155,000 per year. Total expenses, including depreciation, are expected to be $125,000 per year. Connor management has set a minimum acceptable rate of return of 15%. Assume straight-line depreciation. a. Determine the equal annual net cash flows from operating the equipment. Round to the nearest dollar. $ Present...
Keystone Healthcare Corp. is proposing to spend $150,570 on a 10-year project that has estimated net...
Keystone Healthcare Corp. is proposing to spend $150,570 on a 10-year project that has estimated net cash flows of $30,000 for each of the 10 years. 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 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582...
Buckeye Healthcare Corp. is proposing to spend $120,640 on a seven-year project that has estimated net...
Buckeye Healthcare Corp. is proposing to spend $120,640 on a seven-year project that has estimated net cash flows of $29,000 for each of the seven years. 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 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582...
Buckeye Healthcare Corp. is proposing to spend $124,072 on a nine-year project that has estimated net...
Buckeye Healthcare Corp. is proposing to spend $124,072 on a nine-year project that has estimated net cash flows of $26,000 for each of the nine years. 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 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582...
Net Present Value Method and Internal Rate of Return Method for a service company Keystone Healthcare...
Net Present Value Method and Internal Rate of Return Method for a service company Keystone Healthcare Corp. is proposing to spend $228,160 on a 10-year project that has estimated net cash flows of $31,000 for each of the 10 years. 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...
Net Present Value Method and Internal Rate of Return Method for a service company Buckeye Healthcare...
Net Present Value Method and Internal Rate of Return Method for a service company Buckeye Healthcare Corp. is proposing to spend $79,611 on a five-year project that has estimated net cash flows of $21,000 for each of the five years. 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...