50.1K

Verified Solution

Link Copied!

Jane Doe, president of Big Stick Construction Co., has asked for your help in selecting new equipment for purchase. She has decided to purchase a new track hoe and has narrowed the selection to two competitors. Track Hoe #1 costs $100,000 and has an hourly operating cost of $31.00 and a salvage value of $35,000 at the end of three operating seasons (November 2015 not December 2015). The Track Hoe #2 costs $65,000 and has an hourly operating cost of $36.00 and no salvage value after 3 operating seasons. A track hoe operator costs $29.00 per hour of operation and works on other tasks when the track hoe is not in use. With either track hoe, revenue will be $95.00 per billable hour. Based on experience, Big Stick expects to use the new track hoe for 1,200 billable hours per year. Since the company is located in Vermont, the track hoe normally is only used for 8 months each year (April through November), and the related Excel workbook specifies the expected distribution of billable hours over those 8 months. Big Stick assumes that it can dispose of Track Hoe #1 for the salvage value at the end of the last month in the 2015 construction season. Big Stick expects no inflation. Dollar values should be constant over the next 3 years. Because the track hoe will not be needed until April of 2013, they plan to close the purchase March 31, 2013 and to take delivery the next business day. Big Sticks cost of capital is 7.5%. The Board of Directors demands a 5% profit margin. Recently, Big Stick personnel have engaged in extended discussions regarding the decision tools to use in comparing alternatives such as these. The company needs a respected and impartial outside party to settle this debate and to advise them on techniques for such financial decisions. Therefore, President Jane is willing to pay a steep consulting fee for your financial advice in this situation. She wants these: Net Present Value, Future Worth, Rate of Return or Internal Rate of Return, Payback without interest, and Payback with interest. To score points with President Jane (and you do want her business), you need to complete the spreadsheet and provide solutions in each highlighted cell.

Financial Comparison of Track Hoe #1 with Track Hoe #2 * the Start End! F Price Year 2013 2014 2015 Months . 1 45 7 11 11 (3/H Tata SubTat Sub-Tat Sub-Taan.13 Fet-13 Nar:13 Apr;13:13 Jun.13 12 1) 15 11 17 18 19 20 21 $ 22 23 2227 22 23 Mar 13 Apr.1M13 Jun 13 Jul 13.Aug.13 Sep 13 Oct-13 M.13 Dec 13 Jan 14 Feb 14 Mar 14 A1.14 Nay 14 Jun 14 d.14 Au .14 Sco.14 Oc1:14 Nov 19 Dec 18 Jan 15 Feb 15 Mar.15 Apr.15 M.15 Jun 15 Jul 15 Aug-15 Sep 15 Oct 15 Mar 15 Dec 15 Amount 28 31 31 - J. 14. - 32 Cun No: Data For Both Track Hoes 1 for 120 123 106 20 150 53 100 184 96 150 3. 1 13 MARA day Destacima 14 4A 129 years 1 1 1 1 1 1 Track Hoe 1 1 1 11 Tusher THO Tox 2 The Dawn Cate ST 528 This 33 MCH 34 www. Lucas Page 1 Page 2 2. Page 3 1 Pe Vale PWC Pussy Track Hoe 12 Thox The 59 51 Taper Canh TWO 58 Oy 5 TMICE 3 52 MCF 95 Can Canh Press PUENCE Projectes Financial Comparison of Track Hoe #1 with Track Hoe #2 1 14 23 33 Com Sorti Start End Price 3 Year 2013 2014 20151 Marits 0 4 5 7 8 9 10 11 11 12 120 15 16 17 18 19 21 21 22 23 24 25 26 27 29 30 31 32 $ $IH Total Sub Tot Sub Tot Sub-Tat! Jan 13 Feb 13 Mar 13 Apr 13 May 03 Jan-13 d.3. Aug 05.13 Oct-13 Nov-1] Dec 31 Jan 14 Feb 14 Mar 14 Apr 14 Nay-14 Jun 14 Jul 14 Aug 14 Sep 14 Oc1-14 Now:14Dec.14) Jan 15 Feb 15 Mar 15 Apr-15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct-15 Mov-15 Dec 15mount - Recuested Valuation Med is el E TEI THE ! 1 1 1 31 Fure Value w TH The 1 Blumarum THE THI Page 4 Page 5 Page 6 1. Patack without interest andere months 91 H THE 98 DO 101 ! 1 1 ISS Patack with latter 134 H THE 13 13 TUT 119 o Final recommendation 11 Tar 1927 12 19 19 115 IT 118 18 121 Financial Comparison of Track Hoe #1 with Track Hoe #2 * the Start End! F Price Year 2013 2014 2015 Months . 1 45 7 11 11 (3/H Tata SubTat Sub-Tat Sub-Taan.13 Fet-13 Nar:13 Apr;13:13 Jun.13 12 1) 15 11 17 18 19 20 21 $ 22 23 2227 22 23 Mar 13 Apr.1M13 Jun 13 Jul 13.Aug.13 Sep 13 Oct-13 M.13 Dec 13 Jan 14 Feb 14 Mar 14 A1.14 Nay 14 Jun 14 d.14 Au .14 Sco.14 Oc1:14 Nov 19 Dec 18 Jan 15 Feb 15 Mar.15 Apr.15 M.15 Jun 15 Jul 15 Aug-15 Sep 15 Oct 15 Mar 15 Dec 15 Amount 28 31 31 - J. 14. - 32 Cun No: Data For Both Track Hoes 1 for 120 123 106 20 150 53 100 184 96 150 3. 1 13 MARA day Destacima 14 4A 129 years 1 1 1 1 1 1 Track Hoe 1 1 1 11 Tusher THO Tox 2 The Dawn Cate ST 528 This 33 MCH 34 www. Lucas Page 1 Page 2 2. Page 3 1 Pe Vale PWC Pussy Track Hoe 12 Thox The 59 51 Taper Canh TWO 58 Oy 5 TMICE 3 52 MCF 95 Can Canh Press PUENCE Projectes Financial Comparison of Track Hoe #1 with Track Hoe #2 1 14 23 33 Com Sorti Start End Price 3 Year 2013 2014 20151 Marits 0 4 5 7 8 9 10 11 11 12 120 15 16 17 18 19 21 21 22 23 24 25 26 27 29 30 31 32 $ $IH Total Sub Tot Sub Tot Sub-Tat! Jan 13 Feb 13 Mar 13 Apr 13 May 03 Jan-13 d.3. Aug 05.13 Oct-13 Nov-1] Dec 31 Jan 14 Feb 14 Mar 14 Apr 14 Nay-14 Jun 14 Jul 14 Aug 14 Sep 14 Oc1-14 Now:14Dec.14) Jan 15 Feb 15 Mar 15 Apr-15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct-15 Mov-15 Dec 15mount - Recuested Valuation Med is el E TEI THE ! 1 1 1 31 Fure Value w TH The 1 Blumarum THE THI Page 4 Page 5 Page 6 1. Patack without interest andere months 91 H THE 98 DO 101 ! 1 1 ISS Patack with latter 134 H THE 13 13 TUT 119 o Final recommendation 11 Tar 1927 12 19 19 115 IT 118 18 121

Answer & Explanation Solved by verified expert

See Answer