Net Present Value Method—Annuity Jones Excavation Company is planning an investment of $162,800 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for six years. Customers will be charged $130 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 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.   Jones Excavation Company Equal Annual Net Cash Flows Cash inflows:           fill in the blank 240e29fc605f03b_2       × $fill in the blank 240e29fc605f03b_4         $fill in the blank 240e29fc605f03b_6 Cash outflows:           fill in the blank 240e29fc605f03b_8     $fill in the blank 240e29fc605f03b_10       fill in the blank 240e29fc605f03b_12         × $fill in the blank 240e29fc605f03b_14         fill in the blank 240e29fc605f03b_16       fill in the blank 240e29fc605f03b_18       $fill in the blank 240e29fc605f03b_20 b. Determine the net present value of the investment, assuming that the desired rate of return is 20%. 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 5d70bb0b607307e_1 Amount to be invested fill in the blank 5d70bb0b607307e_2 Net present value $fill in the blank 5d70bb0b607307e_3 c. Should Jones 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 20%. 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 hours

Question

Net Present Value Method—Annuity

Jones Excavation Company is planning an investment of $162,800 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for six years. Customers will be charged $130 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 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.

 
Jones Excavation Company
Equal Annual Net Cash Flows
Cash inflows:      
    fill in the blank 240e29fc605f03b_2  
    × $fill in the blank 240e29fc605f03b_4  
      $fill in the blank 240e29fc605f03b_6
Cash outflows:      
    fill in the blank 240e29fc605f03b_8  
  $fill in the blank 240e29fc605f03b_10    
  fill in the blank 240e29fc605f03b_12    
    × $fill in the blank 240e29fc605f03b_14  
      fill in the blank 240e29fc605f03b_16
      fill in the blank 240e29fc605f03b_18
      $fill in the blank 240e29fc605f03b_20

b. Determine the net present value of the investment, assuming that the desired rate of return is 20%. 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 5d70bb0b607307e_1
Amount to be invested fill in the blank 5d70bb0b607307e_2
Net present value $fill in the blank 5d70bb0b607307e_3

c. Should Jones 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 20%.

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 hours

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