Happy Harvesters, Inc. owns a large combine. They know how much their costs are for fuel, repairs and labor, but they need help calculating their current ownership costs, so they can tell if the custom rates they charge for combining are high enough. Here are their facts:

Estimated current value of the combine and harvesting heads: $120,000

Estimated salvage value in 5 years $ 60,000

Cost of capital: 80% borrowed at 7.5%, 20% equity (5% opportunity cost) ___7___%

Insurance and taxes: 0.5% of current value

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What would be their average ownership costs per year over the 5 years they expect to own the combine? (first find the average value of the combine over the 5 years)

Depreciation: $_ 12000 _

Average Value: $ 90000 _

Interest: $_ 6300 __

Taxes and insurance: $_ _450___

Total $_ 18750 __