In: Accounting
Briggs Excavation Company is planning an investment of $154,500 for a bulldozer. The bulldozer is expected to operate for 2,000 hours per year for five years. Customers will be charged $110 per hour for bulldozer work. The bulldozer operator costs $33 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 $43 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. Use a minus sign to indicate cash outflows. this is an input table. Need the numbers to go with each.
Briggs Excavation Company | |||
Equal Annual Net Cash Flows | |||
Cash inflows: | |||
Hours of operation | 2,000 | ||
Revenue per hour | X $110 | ||
Revenue per year | $220,000 | ||
Cash outflows: | |||
Hours of operation | 2,000 | ||
Fuel cost per hour | $43 | ||
Labor cost per hour | $33 | ||
Total fuel and labor costs per hour | X $ ?? | ||
Fuel and labor costs per year | ?? | ||
Maintenance costs per year | ?? | ||
Annual net cash flows | $ ?? |
Determine the net present value of the investment, assuming that the desired rate of return is 15%. 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 | $ ?? |
Amount to be invested | $ ?? |
Net present value | $ ?? |
c. Should Briggs Excavation invest in the
bulldozer, based on this analysis?
Yes , because the bulldozer cost is more than the
present value of the cash flows at the minimum desired rate of
return of 15%.
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.
?? hours
where there '??' are the numbers that I am missing and cant figure out
a.) | Equal Annual Net Cash Flows:- | ||
Cash Inflows: | |||
Hours of Operation | 2,000 | ||
X Revenue per Hour | 110 | ||
Revenue per year | 2,20,000 | ||
Cash Outflows: | |||
Hours of Operation | 2,000 | ||
Fuel Cost per hour | 43 | ||
Labour Cost per hour | 33 | ||
Total Fuel & Labour costs per hour ( 43 + 33 ) | 76 | ||
Fuel & Labour Cost per year ( 2,000 x 76 ) | 1,52,000 | ||
Maintenance Cost per year | 20,000 | ||
Annual Net Cash Flows | 48,000 | ||
( 220,000 - 152,000 - 20,000 ) | |||
b.) | Present Value of annual net cash flows | 1,60,944 | |
( 48,000 x 3.353 ) | |||
Amount to be Invested | 1,54,500 | ||
Net Present Value | 6,444 | ||
( 160,944 - 154,500 ) | |||
d.) | Determination of number of operating hours such that the present value of cash flows equals the amount to be invested.:- | ||
Let the number of operating hours be Y. | |||
Equation will be:- | |||
((Y x 110) - (( Y x 76 ) + 20,000 )) x 3.353 = 154,500 | |||
(110 Y - 76Y - 20,000 ) x 3.353 = 154,500 | |||
(34 Y - 20,000 ) x 3.353 = 154,500 | |||
114.002 Y - 67,060 = 154,500 | |||
114.002 Y = 154,500 + 67,060 | |||
114.002 Y = 221,560 | |||
Y = 221,560 / 114.002 | |||
Y = 1943.475 Hours | |||
At 1943.475 operating Hours , Present Value of cash flows will be equal to amount invested. | |||
Cash Inflows: | |||
Hours of Operation | 1,943.475 | ||
X Revenue per Hour | 110 | ||
Revenue per year | 2,13,782 | ||
Cash Outflows: | |||
Hours of Operation | 1,943.475 | ||
Fuel Cost per hour | 43 | ||
Labour Cost per hour | 33 | ||
Total Fuel & Labour costs per hour ( 43 + 33 ) | 76 | ||
Fuel & Labour Cost per year ( 1,943.475 x 76 ) | 1,47,704 | ||
Maintenance Cost per year | 20,000 | ||
Annual Net Cash Flows | 46,078 | ||
( 213,782- 147,704 - 20,000 ) | |||
Present Value of annual net cash flows | 1,54,500 | ||
( 46,078 x 3.353 ) | |||
Amount to be Invested | 1,54,500 | ||
Net Present Value | -0 | ||
( 154,500 - 154,500 ) | |||