Question

"A highway contractor is considering buying a new trench excavator that costs $353,000 and can dig a 3-foot-wide trench at the rate of 15 feet per hour. The annual number of feet to dig each year is 4,900. The machine's production rate will remain constant for the first 2 years of the operation and then decrease by 2 feet per hour for each additional year. The maintenance and operating costs will be $57 per hour. The contractor will depreciate the equipment with a five-year MACRS. At the end of 5 years, the excavator can be sold for $78,000. The contractor will earn an additional annual revenue of $117,000 with this new machine. Assuming the contractor's tax rate is 32% per year, determine the net present worth of the cash flow from this machine. The company's MARR is 15%."

Answer 1

No of hours required to dig 4,900 feet for first 2 years = 4,900/15 = 320 hours

Operating cost for first 2 years = $57 * 320 = $18,240

No of hours required to dig 4,900 for 3rd years = 4,900/13

Operating cost for first 3rd years = $57 * (4,900/13) = $21,484.62

No of hours required to dig 4,900 for 4th years = 4,900/11

Operating cost for first 4th years = $57 * (4,900/11) = $25,390.91

No of hours required to dig 4,900 for 5th years = 4,900/9

Operating cost for first 5th years = $57 * (4,900/9) = $31,033.33