Maddox Excavation Company is planning an investment of $205,000 for a bulldozer. The bulldozer is expected to operate for 1,600 hours per year for five years. Customers will be charged $95 per hour for bulldozer work. The bulldozer operator is paid an hourly wage of $25 per hour. The bulldozer is expected to require annual maintenance costing $14,000. The bulldozer uses fuel that is expected to cost $30 per hour of bulldozer operation.
Partial Present Value of $1 Table
Present Value of $1 at Compound Interest |
|||||
Year |
6% |
10% |
12% |
15% |
20% |
1 |
0.943 |
0.909 |
0.893 |
0.870 |
0.833 |
2 |
0.890 |
0.826 |
0.797 |
0.756 |
0.694 |
3 |
0.840 |
0.751 |
0.712 |
0.658 |
0.579 |
4 |
0.792 |
0.683 |
0.636 |
0.572 |
0.482 |
5 |
0.747 |
0.621 |
0.567 |
0.497 |
0.402 |
6 |
0.705 |
0.564 |
0.507 |
0.432 |
0.335 |
7 |
0.665 |
0.513 |
0.452 |
0.376 |
0.279 |
8 |
0.627 |
0.467 |
0.404 |
0.327 |
0.233 |
9 |
0.592 |
0.424 |
0.361 |
0.284 |
0.194 |
10 |
0.558 |
0.386 |
0.322 |
0.247 |
0.162 |
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%. Round to the nearest dollar.
c. Should Maddox invest in the bulldozer, based on this analysis?