Using method 1 (combined depreciation and investment cost) determine the probable cost per hour of owning and operating a caterpillar that uses rubber tires.The equipment is a 185-hp diesel engine and the following conditions apply.

Factor delivered price = $ 472,550

Sales tax = 6.5% of delivered price

Unloading and assembling = $2,175

Salvage value = $ 115,000

Useful life = $ 6 yr.

Hours used per year = 1,675 hr

Interest on investment = 9.5%

Maintenance and repair = 65% of straight line depreciation

Diesel engine = 185 hp

Operating factor = 0.60

Fuel cost = $5.45/gal

Crankcase capacity = 9 gal

Hours between oil changes = 135 hr.

Oil cost = $14.25/gal

Tires = $ 62,500

Tire life = 4950 hr.

Tire repairs = 12% of tire depreciation