Net Present Value Method—Annuity Briggs Excavation Company is planning an invest
ID: 2456212 • Letter: N
Question
Net Present Value Method—Annuity
Briggs Excavation Company is planning an investment of $132,000 for a bulldozer. The bulldozer is expected to operate for 1,500 hours per year for five years. Customers will be charged $110 per hour for bulldozer work. The bulldozer operator costs $28 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $8,000. The bulldozer uses fuel that is expected to cost $46 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 3.352 2.991 6 4.917 4.355 4.111 3.784 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 4.192Explanation / Answer
Contribution per hour = 110 - 28 - 46 = 36 per hour
Total Contribution in one year = 1500 * 36 = $54000
Net Income every year = 54000 - 8000 = 46000
Present Value of Inflows = 46000 * PVIFA
Years 1 2 3 4 5 PVIFA ( 5 years) 6% 10% 12% 15% 20% Yearly Inflows 46,000.00 46,000.00 46,000.00 46,000.00 46,000.00 Annuity Factor 4.21 3.79 3.61 3.35 2.99 PV Of Inflows 193,752.00 174,386.00 165,830.00 154,192.00 137,586.00 Outflow 132,000.00 132,000.00 132,000.00 132,000.00 132,000.00 NPV 61,752.00 42,386.00 33,830.00 22,192.00 5,586.00