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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Net present value method—annuity

Osborne Excavation Company is planning an investment of $315,000 for a bulldozer. Thebulldozer is expected to operate for 1.850 hours per year for five years. Customers will hecharged $140 per hour for bulldozer work. The bulldozer operator costs $37 per hour inwages and benefits. The bulldozer is expected to require annual maintenance costing $9.750.

The bulldozer uses fuel that is expected to cost $48 per hour of bulldozer operation.

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

b. Determine the net present value of the investment, assuming that the desired rate of returnis 10%. Use the table of present values of an annuity of $1 in the chapter. Round to thenearest dollar.

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

To determine

(a)

Concept Introduction:

Cash flow statement is a very important part of the financial statement of all company. Cash flow balance always equal to net cash as like cash received in the business minus cash paid during the year i.e. the difference between the cash inflow and the cash outflow.

To Find out:

The annual net cash flows from operating the hotel.

Explanation

Total Revenue from the customer is:

  Revenue=$140×1,850=$259,000

Total cash outflow is:

  Outflow={($37+$48)×1,850}+$

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