A land development company is considering the purchase of earth moving equipment. This equipment will have an
Question:
A land development company is considering the purchase of earth moving equipment. This equipment will have an estimated first cost of $190,000, a salvage value of $70,000, a life of 10 years, a maintenance cost of $40,000 per year, and an operating cost of $260 per day. Alternatively, the company can rent the necessary equipment for $1100 per day and hire a driver at $180 per day.
(a) If the company’s MARR is 10% per year, how many days per year must the company need the equipment in order to justify its purchase?
(b) When approached to rent for the breakeven number of days, the equipment owner indicated that the minimum rental is for 100 days per year; however, he might consider a lower daily rental cost. What is the daily rental cost to justify renting over purchasing? If the equipment was purchased, assume it would be used for the breakeven number of days. Use the Goal Seek or Solver tool to determine the required rental cost per day.
Salvage ValueSalvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
Step by Step Answer:
a Let x days per year to just breakeven 190000AP1010 40000 70000AF1010 260x 1100x 180x 190000016275 ...View the full answer
