A contractor has purchased a new piece of equipment. Using the information below determine the

a) ownership

b) operating cost per hour.

Clearly indicate the cost of each item that makes up the ownership and operating cost.

Delivered Price (includes tires): $1,000,000

Salvage Value: $200,000

Straight Line Depreciation used for Ownership Cost

Set of 4 Tires: $60,000

Tire Life: 12,000 hours

Tire Repair: $0.75 per hour

Service Life: 10,000 hours

Hours Operated: 1,000 hours/year

Fuel Cost: $3.50/gallon

Horsepower: 460 hp (55 % of time at 75%HP and 45% of time at 50%HP)

Use the fuel consumption formula from class.

Lubrication is 10% of the cost of fuel

IIT: 6%

AAV: Equation: AAv= (C(n+1) + S(n-1))/2n

C: initial price - cost of tires

S: Salvage life

n: service life in years (SLY)

Lifetime Repair Cost: 40 % of Initial Cost

High Wear Items: $0.60 per hour

total cost of G Total Cost of Ownership Fixed Costs Variable Costs - Depreciation -- Insurance, Interest & Fuel, Oil Maintenance Taxes (IIT) Tires Grease (FOG) Use Straight Calculate Averagespecified cost + Line Method to Annual Value usage Estimate Hourly (AAV) Depreciation Fuel Use (gal/hr) = Use MACRS for Fuel use Factor (gal/hr- estimating cost of doing business x HP x (% Peak HP) IIT/year = Rate x AAV IIT/hour = (IIT/year)/ % of Depreciation HP) x HP cm Peak HP) total cost of G Total Cost of Ownership Fixed Costs Variable Costs - Depreciation -- Insurance, Interest & Fuel, Oil Maintenance Taxes (IIT) Tires Grease (FOG) Use Straight Calculate Averagespecified cost + Line Method to Annual Value usage Estimate Hourly (AAV) Depreciation Fuel Use (gal/hr) = Use MACRS for Fuel use Factor (gal/hr- estimating cost of doing business x HP x (% Peak HP) IIT/year = Rate x AAV IIT/hour = (IIT/year)/ % of Depreciation HP) x HP cm Peak HP)