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Net Present Value MethodAnnuity

Briggs Excavation Company is planning an investment of $416,000 for a bulldozer. The bulldozer is expected to operate for 3,000 hours per year for seven years. Customers will be charged $120 per hour for bulldozer work. The bulldozer operator costs $34 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 $45 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

Question Content Area

a. Determine the equal annual net cash flows from operating the bulldozer. Use a minus sign to indicate cash outflows.

blank Briggs Excavation Equal Annual Net Cash Flow

Cash inflows:
Fuel and labor costs per yearHours of operationMaintenance costs per yearTotal fuel and labor costs per hour		- Select -
Fuel and labor costs per yearFuel cost per hourLabor cost per hourRevenue per hour		$- Select -
Fuel and labor costs per yearFuel cost per hourLabor cost per hourRevenue per year			$- Select -
Cash outflows:
Fuel and labor costs per yearHours of operationMaintenance costs per yearTotal fuel and labor costs per hour		- Select -
Annual net cash flowFuel cost per hourRevenue per yearRevenue per hour	$- Select -
Annual net cash flowLabor cost per hourRevenue per yearRevenue per hour	- Select -
Annual net cash flowTotal fuel and labor costs per hourRevenue per yearRevenue per hour		$- Select -
Annual net cash flowFuel and labor costs per yearRevenue per yearRevenue per hour			- Select -
Annual net cash flowMaintenance costs per yearRevenue per yearRevenue per hour			- Select -
Annual net cash flowHours of operationRevenue per yearRevenue per hour			$- Select -

Question Content Area

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	$fill in the blank 275f68ff3fc7fd2_1
Amount to be invested	$fill in the blank 275f68ff3fc7fd2_2
Net present value	$fill in the blank 275f68ff3fc7fd2_3

c. Should Briggs Excavation invest in the bulldozer, based on this analysis?

YesNo

, because the bulldozer cost is

less thanmore 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. fill in the blank 275f68ff3fc7fd2_6 hours

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