Discuss the below:
Net Present Value Method A series of equal cash flows at fixed intervals.
Annuity
E & T Excavation Company is planning an investment of $466,600 for a bulldozer. The bulldozer is expected to operate for 2,000 hours per year for 10 years. Customers will be charged $125 per hour for bulldozer work. The bulldozer operator costs $27 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 $35 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 |
4.192 |
Determine the number of operating hours such that the present value of cash flows equals the amount to be invested.