Jones Excavation Company is planning an investment of $348,200 for a bulldozer. The bulldozer is expected to operate for 2,000 hours per year for 5 years. Customers will be charged $125 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 $20,000. The bulldozer uses fuel that is expected to cost $39 per hour of bulldozer operation. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 Cash inflows: Hours of operation Revenue per hour 0.909 1.736 2.487 3.170 3.791 4.355 Revenue per year Cash outflows: Hours of operation Fuel cost per hour 4.868 5.335 Line Item Description Labor cost per hour 5.759 6.145 0.893 1.690 2.402 Fuel and labor costs per year 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.870 Total fuel and labor costs per hour 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 0.833 a. Determine the equal annual net cash flows from operating the bulldozer. 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 Jones Excavation Company Equal Annual Net Cash Flows Amount 4.192 x $ x $ Amount 2,000 Amount

Jones Excavation Company is planning an investment of $348,200 for a bulldozer. The bulldozer is expected to operate for 2,000 hours per year for 5 years. Customers will be charged $125 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 $20,000. The bulldozer uses fuel that is expected to cost $39 per hour of bulldozer operation. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 Cash inflows: Hours of operation Revenue per hour 0.909 1.736 2.487 3.170 3.791 4.355 Revenue per year Cash outflows: Hours of operation Fuel cost per hour 4.868 5.335 Line Item Description Labor cost per hour 5.759 6.145 0.893 1.690 2.402 Fuel and labor costs per year 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.870 Total fuel and labor costs per hour 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 0.833 a. Determine the equal annual net cash flows from operating the bulldozer. 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 Jones Excavation Company Equal Annual Net Cash Flows Amount 4.192 x $ x $ Amount 2,000 Amount

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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