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20 December, 03:42

Jones Excavation Company is planning an investment of $125,000 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for five years. Customers will be charged $90 per hour for bulldozer work. The bulldozer operator costs $30 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $7,500. The bulldozer uses fuel that is expected to cost $15 per hour of bulldozer operation.

Determine the equal annual net cash flows from operating the bulldozer.

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  1. 20 December, 04:03
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    net cash flows = $37,500 per year

    Explanation:

    initial investment $125,000

    operate 1,000 hours per year for 5 years

    price per hour $90

    direct labor costs $30 per hour

    direct materials (fuel) $15 per hour

    annual maintenance $7,500

    the annual cash flows from operating the bulldozer = [ ($90 (price per hour) - $45 (total variable costs per hour) x 1,000 hours] - $7,500 (annual maintenance cost) = $45,000 - $7,500 = $37,500 per year

    the cash flows should be the same for years 1 through 5.
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