E & T Excavation Company is planning an investment of $645,300 for a bulldozer.
ID: 2415595 • Letter: E
Question
E & T Excavation Company is planning an investment of $645,300 for a bulldozer. The bulldozer is expected to operate for 2,000 hours per year for eight years. Customers will be charged $145 per hour for bulldozer work. The bulldozer operator costs $31 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 $41 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 return is 10%. 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.
c. ?Should E & T invest in the bulldozer, based on this analysis?
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
Explanation / Answer
a.
Equal annual net cash flow from operating the bulldozer is as follows:
b.
Net present value of investment is calculated as under:
c.
Yes E $T should invest in the bulldozer.
E and T Excavation Company Equal Annual Net Cash Flow Particulars Amount ($) Amount ($) Amount ($) Cash inflows: 8 years Bulldozer Work receipts from customers $290,000 $2,320,000 Total Cash inflow $2,320,000 Cash outflows: Initial investment (one time) $645,300 $645,300 Bulldozer operator cost $62,000 $496,000 Annual maintenance Costing $20,000 $160,000 Fuel Cost $82,000 $656,000 Total cash outflow $1,957,300Related Questions
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