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A machine cost $425,000 to purchase. Fuel, Oil, Grease and Minor maintenance are estimated to cost $45.50 per operating hour. A set of tires cost
A machine cost $425,000 to purchase. Fuel, Oil, Grease and Minor maintenance are estimated to cost $45.50 per operating hour. A set of tires cost $12,000 to replace, and their estimated life is 4,000 hours of use. A $25,000 major repair will probably be required after 6,000 hours of use. The machine is expected to last for 12,000 hours. Then it will be sold for 10% of the original purchase price. A final set of tires will not be purchased before the sale. How much should the owner of the machine charge per hour of use, if it is expected that the machine will operate 2,000 hours per year? The company's cost of capital (interest rate) is 6.25%
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