Net Present Value Method—Annuity Briggs Excavation Company is planning an invest

Question

Net Present Value Method—Annuity

Briggs Excavation Company is planning an investment of $132,000 for a bulldozer. The bulldozer is expected to operate for 1,500 hours per year for five years. Customers will be charged $110 per hour for bulldozer work. The bulldozer operator costs $28 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $8,000. The bulldozer uses fuel that is expected to cost $46 per hour of bulldozer operation.

4.192

a. Determine the equal annual net cash flows from operating the bulldozer.

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.

Briggs Excavation Company Equal Annual Net Cash Flow Cash inflows: Hours of operation Revenue per hour X $ Revenue per year $ Cash outflows: Hours of operation Fuel cost per hour $ Labor cost per hour Total fuel and labor costs per hour X $ Fuel and labor costs per year Maintenance costs per year Annual net cash flow $

Explanation / Answer

Cash inflows: Hours of operation 1500 Revenue per hour 110 Revenue per year 165000 Cash outflows: Hours of operation 1500 Fuel cost per hour 46 Labor cost per hour 28 Total fuel and labor costs per hour 74 Fuel and labor costs per year 111000 Maintenance costs per year 8000 Annual net cash flow 46000

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